Domtar's aggressive buyback program prompts analyst to upgrade 12-month price target; company beat expectations last week, maintained share buyback and dividend outlook

Sandy Yang

DON MILLS, Ontario , February 7, 2012 (National Post) – Pulp and paper company Domtar is looking like an attractive stock for 2012 after the company beat expectations last week and maintained its share buyback and dividend outlook.

Mike Richmond, analyst at Salman Partners Inc., has taken notice of that fact. He raised his 12-month price target on the company Monday to $125 a share, from his previous price target of $120. His buy recommendation was left unchanged.

Part of Mr. Richmond's revised price target is based on his assumption of a more aggressive share buyback program from Domtar this year.

"Domtar increased its share buyback limit to $1-billion in December 2011, and remained active under the plan; at yearend, the share count was just 36.8 million, down from 37.8 million at the end of Q3," he said in a note to investors.

In addition to his hiked price target based on Domtar's share buyback program, Mr. Richmond also called attention to the company's dividend. "Domtar returned 73% of free cash flow to investors in 2011 through share buybacks and dividends, and has guided t o a similar capital allocation policy for 2012," he said.

Domtar beat earnings expectations when it reported last week. The Montreal-based company said its earnings for the period amounted to $61million, or $1.63 per share in the fourth quarter.

However, when accounting for one-time items, Domtar said earnings were $93-million, or $2.49 per share. That beat Thomson Reuters consensus of $2.26 a share and Mr. Richmond's own expectations of $2.15 a share.

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