Initiating w/ Buy; Early Innings In Secular Grower with Pricing Power

Research evidence excerpt

Initiating w/ Buy; Early Innings In Secular Grower with Pricing Power

al wood aesthetic. In a more normalized R&R & new res market,

we believe LPX's LT growth algo can support MSD vol & HSD sales growth, in line with historical Chart 1 - LPX Siding LT Sales

avg since 2018. Growth12% Algo

8% +3-4% HSD%Clear path to drive penetration. LPX is driving growth in R&R through improving brand recognition 10%

~1%& expansion of the contractor network & product placement. LPX's penetration in R&R has 6%4% +3-4%

accelerated with the intro of ExpertFinish, which has grown at a 34% CAGR since 2020. LP uses 2%0%

new products to layer on incremental ASP to its list price increases. Separately, LP has prioritized .Source:MarketCompanyGrowth Share GainData, JefferiesPricing LT Sales Growth

builders as a growth vector, and utilized its bundling program to get access to mkts they're under Estimates

penetrated (SE & TX). LP offers a bundling program with more competitive price for siding & OSB

Chart 2 - Siding Substrate

combined, and provide surety of supply in OSB, which the builders value. LP has leveraged its win Share

with LEN with large builders, and is now shipping >1 mmsf of siding to 15 of the top 25 builders,

which only represents HSD% of its vols.

OSB at bottom of cycle. The OSB mkt is operating at a trough, with prices hovering near recent lows,

due to supply coming online & weak SF starts. Our S/D model is calling for op rates remaining in the

mid-80s, and our forecasts assumes "lower-for-longer" OSB prices. That said, LPX's OSB business

generated mid-cycle type EBITDA (~$226 mil) in 2023-24 with operating rates in the mid-80s, which

could provide upside. Our $93 PT, we applied a 12x EV/EBITDA for siding (1.5x discount to JHX)

.