Seeking AlphaSeeking Alpha

Mercer downgraded at RBC as pulp prices head in the wrong direction

Mercer International (NASDAQ:MERC) -10.8% in Thursday's trading as RBC Capital cuts shares to Sector Perform from Outperform with a $14 price target, down from $17, citing near-term headwinds including a new €130/MWh electricity price cap in Germany structured as a windfall tax.

Mercer (MERC) is one of the world's largest producers of NBSK pulp, and RBC's Paul Quinn noted North American NBSK prices have slipped from a peak of $1,805/ton in August to $1,745/ton in November, which he expects will continue to ease lower to an average of $1,600 in 2023 an $1,445 in 2024.

Quinn also sees input costs as a challenge, with the company saying it expects fiber costs in its German pulp business to continue to rise sequentially into Q4 after jumping ~20% from Q2 into Q3.

But Quinn sees plenty to like about Mercer's (MERC) longer-term story, including a growing opportunity in cross-laminated timber, integration benefits in Germany, and the company's competitive wood products business.

Mercer (MERC) reported Q3 GAAP earnings of $1.00/share on revenues of $533M.