Clearwater Paper Corporation

CLW Details

Clearwater Paper Corporation (NYSE: CLW) is focused on manufacturing and selling private label tissue, paperboard, and pulp-based products. Its revenue-generating segments are 1) Pulp and Paperboard, offering bleached paperboard to the packaging industry, along with custom sheeting, slitting, and cutting services, and 2) Consumer Products, comprising the sale of a diverse range of at-home tissue products. As of September 29, 2021, the company's market capitalization stood at USD 616.43 million.

Insider Transactions: According to an article by Simply Wall St, Mr Michael Gadd, CLW's Senior Vice President, sold a portion of his stake in the company for USD 282.7 thousand at an average price of USD 37.26 per share in the last twelve months. This is the biggest among a series of insider transactions that have occurred during this period. The number of CLW shares sold by insiders far exceeds the number of shares bought, which could be a point of concern for the shareholders.

Q2FY21 Results: The company reported a 15.44% decline 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 lower converted case shipments, which observed a decline of 36% YoY. Net loss for Q2FY21 was USD 51.6 million vs. a net income of USD 22.8 million reported in Q2FY20. It also incurred a USD 41.7 million impairment and closure expense relating to the cessation of its tissue and converting operations at the Neenah, Wisconsin facility during the quarter. As of June 30, 2021, the company had cash and cash equivalents of USD 60.9 million, with total debt amounting to USD 717.9 million.

Key Risks: CLW's top ten customers represented 50% of its net sales in FY20. The loss of any of these key customers or a change in their business relationship could hurt its financials. In addition, the company is dependent on a limited number of suppliers for its raw material and manufacturing equipment needs, and any failure on the contractual obligations by these vendors could prove to be detrimental to the company's operations.

Outlook: CLW stated that it expects to generate adjusted EBITDA in the range of USD 40 to 48 million in Q3FY21, resulting from lower expected maintenance outage impact, increased paperboard sales price, higher tissue sales, and the benefits to be realized from the cessation of the Neenah facility.

For FY21, the company anticipates the impact of maintenance outages on adjusted EBITDA to range between USD 25 and 27 million. It also estimates its FY21 capital expenditures to be in the range of USD 50 – 55 million.

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 32.38% in the past three months and is currently close to the mid-point of the 52-week range of USD 27.30 to USD 45.81. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 81.32. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 34.29. Considering the significant uptick in the stock price, major maintenance outages, considerable insider transactions and current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 38.35, up 3.82% as of September 29, 2021.

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

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