Citigroup Downgrades Louisiana-Pacific

Analyst Chip Dillon believes the building materials company faces an oversupplied market in 2007 and 2008

Citigroup downgrades building materials company Louisiana-Pacific (LPX ) to hold from buy.

Analyst Chip Dillon says Grant Forest Products announced 1.6 billion square feet of oriented strand board (OSB) capacity to start up during 2007 to 2008 in South Carolina. As such, nine new OSB lines are due to start up in North America in 2005 to 2007.

He says even with nearly 2 billion square feet of plywood capacity expected to exit, he sees an oversupplied market in 2008 (as well as 2007, as earlier thought).

Dillon expects capacity overhang and the likely deferral of the next upcycle to 2009 to 2010 to keep Louisiana-Pacific stock from appreciating significantly over the next 12 months. He lowers his $32 target to $25.

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