RBC Capital Upgrades Resolute Forest Products (RFP) to Outperform and upped its price target on the shares by nearly 38%, to $5.50
Yet as RBC explained, while the analyst is "negative on graphic paper markets," it believes that "record lumber prices, especially in Eastern Canada, will more than offset declines in newsprint & specialty paper."
As cash pours in from the lumber business, moreover, RBC believes that Resolute Forest will use that cash "to reduce leverage, which has been a key investor concern."
As well it should be. For a company with such a tiny market capitalization of just $364 million, Resolute's debt load is remarkably high -- $691 million in debt, with just $27 million in cash on hand to service that debt. The good news, though, is that last quarter Resolute finally turned free-cash-flow positive again -- for the first time in a year -- generating $109 million in positive cash profits.