November 2, 2009 / 6:08 PM / 9 years ago

Domtar shares jump as analysts raise ratings

* Analysts say company gains from competing tax programs

* Shares hit 52-week high for second straight trading day (In U.S. dollars unless noted)

VANCOUVER, British Columbia, Nov 2 (Reuters) - Shares of papermaker Domtar Corp (UFS.TO) (UFS.N) jumped more that 7 percent on Monday as analysts upgraded their ratings on the stock after the company issued positive results last week.

The company’s shares climbed as high as $45.06 in New York and C$49.93 in Toronto, before easing slightly. It was the second consecutive trading day in which the stock set new 52-week highs.

Raymond James raised its rating on Domtar shares to “outperform” from “market perform”, citing the company’s robust free cash flow and expectations it will benefit from U.S. and Canadian government tax programs.

RBC also raised Domtar to “top pick” from “outperform”, and Credit Suisse said it was raising its target price for the New York shares to $70 from $55.

The Montreal-based company posted a third-quarter profit on Friday that handily beat market estimates, helped both by improved pulp prices and lower input costs.

Some of Domtar’s U.S. pulp operations have also benefited from its use of “black liquor”, a byproduct of pulp production used to power mills, which Washington has allowed to qualify for tax credits under an alternative energy program.

Domtar generated free cash flow of $220 million in the third quarter, including $159 million in black liquor tax credits, Raymond James analyst Daryl Swetlishoff wrote in a note to clients.

The Canadian government responded to the U.S. tax credits with its own program, which should benefit Domtar’s Canadian operations, according to analysts.

$1=$1.08 Canadian Reporting by Amit Kumar, Allan Dowd; editing by Peter Galloway

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