Zacks.com: Analyst Blog

An update has come out on Stora Enso OYJ (SEO), in which senior paper and pulp industry analyst Robert J. Perri, is maintaining his Hold rating on the company.  We excerpted the following details:

'Stora Enso reported a weaker-than-expected third quarter of 2007 with revenues below our estimates and a loss due to restructuring expenses. The year-over-year decline in sales is due to the higher average prices for wood, a weaker US dollar along with some divestitures. During the remainder of 2007, the company is expected to suffer from higher wood and material costs which will lower its margins.

'In addition, SEO plans to curtail production in 4Q in both newsprint and wood products. Stora Enso is currently trading at 13.3x our 2008 earnings estimate of $1.16, which is slightly lower than the industry mean. The company expects newsprint volumes to be flat overall in 2007 compared to 2006 and with steady prices. There exists a possibility of oversupply due to inflows from North America which could put prices under pressure. In Japan, the company foresees a temporary stoppage of demand as there is uncertainty over new housing regulations.

'Additionally, the company expects procurement costs to rise by 3.5% per quarter during 2007 primarily due to wood costs, compared to its previous expectation of 2%-2.5%, which has led us to lower our earnings estimates for the remainder of the year. We are maintaining our revenue estimates, however, as the company's estimation of solid demand and stable pricing across most of its markets should support single digit earnings growth for the remainder of the year.

'The restructuring plan outlined by the company should result in a slight earnings decline in 2007, although we are projecting a rebound in 2008, although we may be aggressive in our estimates. We have increased our 2008 earning estimates slightly. We continue to rate SEO a Hold with a price target of $16.00 or 14x our new 2008 earnings estimate of $1.16.'

Read the full analyst report on SEO.