Clearwater Paper Corporation

CLW Details

Clearwater Paper Corporation (NYSE: CLW) manufactures and sells private label tissues, paperboard, and pulp-based products. Its operating segments are 1) Pulp and Paperboard, which provides bleached paperboard for the packaging industry and offers custom sheeting, slitting, and cutting of paperboard services and 2) Consumer Products, which deals in a wide range of at-home tissue products. In Q2FY21, Pulp and Paperboard accounted for 55.96% of CLW's total revenue.

Q2FY21 Results: The company reported a YoY decline of 15.44% in net sales to USD 406.4 million in Q2FY21 (ended June 30, 2021) compared to USD 480.6 million in Q2FY20, primarily due to contraction in sales volume driven by planned maintenance shutdown at Lewiston facility as well continued impact of winter and ice storm in North America. Consequently, CLW reported a net loss of USD 51.6 million in Q2FY1 vs. a net income of USD 22.8 million in Q2FY20, aided by a USD 41.7 million impairment and closure expense arising from the cessation of its Neenah, Wisconsin tissue and converting operations during the quarter. As of June 30, 2021, the company had cash and cash equivalents of USD 60.90 million and total debt of USD 717.90 million.

Key Risks: CLW's top ten customers accounted for 50% of its net sales in FY20. The loss of any of these key customers could hurt the company's financials. In addition, it is dependent on a limited number of suppliers for its raw material and manufacturing equipment needs. As a result, any failure on the contractual obligation by vendors could harm its operations.

Outlook: In Q3FY21, CLW expects to generate adjusted EBITDA in the range of USD 40 – 48 million, owing to tailwinds of USD 17 – 19 million arising from lower maintenance outages and cost savings from the closure of the Neenah facility.  For FY21, the company anticipates the impact of maintenance outages on adjusted EBITDA to the tune of USD 25 – 27 million and incurring USD 50 – 55 million in capital expenditures.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CLW Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CLW's stock price increased 7.32% in the past three months and is currently close to the lower-band of the 52-week range of USD 27.30 to USD 45.81. The weakness in earnings was largely on expected lines. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 60.87. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 34.98. Considering the slight uptick in the stock price, restructuring efforts, major maintenance outages, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 31.98, up 1.23% as of August 18, 2021, 12:21 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.