In a market where many value stocks continue to trade at reasonable multiples but with stable fundamentals, Mercer International stands out for trading at extremely low levels (around $2.55–$2.66 at the beginning of January 2026), with a high theoretical dividend yield (based on past payouts) and potential for cyclical recovery in the pulp and wood sector.
The company is one of the world's largest producers of NBSK (Northern Bleached Softwood Kraft pulp), a premium type of softwood pulp, with modern operations in Germany, the US, and Canada. It also has growing exposure to mass timber and biorefinery projects (carbon capture, lignin production, etc.).
Current Situation (January 2026): Bottom of the Cycle + Extreme Valuation
Mercer has been severely impacted by the pulp and lumber bear market downturn in 2025:
Weak pulp prices due to grade substitution, weakness in China/Europe, and high fiber costs.
Q3 2025 Results: Negative operating EBITDA -$28.1M (including a non-cash impairment of $20.4M), net loss of -$80.8M ($1.21 per share).
The Solid Wood segment (lumber and mass timber) has also suffered due to high interest rates that are slowing construction.
Consequence: The stock has fallen more than 60-70% from its 2024-2025 highs and is trading near all-time lows, with a market capitalization of approximately $170-180M.
Reasons to Consider Buying Now (Bullish Case 2026-2027)
- Aggressive "One Goal One Hundred" Cost Reduction Program
Target: $100M in savings and operational improvements by the end of 2026 (they already expect ~$30M in 2025).
This includes optimization of personnel, logistics, fiber, reduction of 2026 CapEx (~$75M), and liquidity measures.
→ This should significantly improve margins when prices rebound.
- Signs of Stabilization / Modest Recovery in Pulp
Management expects modest improvements in NBSK prices towards the end of Q4 2025 and Q1 2026, thanks to:
Reduced stock levels in Chinese ports.
Curtailments (stoppages) in Europe.
Delisting of Russian pulp on the Shanghai Futures Exchange → less supply. Many pulp industry analysts foresee a gradual rebound in 2026 if the global economy avoids a deep recession.
Growth in mass timber (CLT – cross-laminated timber)
Mercer has approximately 30% of North American CLT capacity. Healthy order book and plans for ramp-up in 2026 (from approximately $60 million in revenue in 2025 to approximately $130 million in 2026).
This segment is more resilient and is growing with the demand for sustainable construction (AI data centers, green buildings).Green projects / biorefinery
Carbon capture pilot launch (December 2025).
Potential for additional revenue from carbon credits and products such as lignin/tall oil.
- Very Attractive Valuation (if the cycle survives)
Trading at ~0.09x trailing sales.
Very low historical EV/EBITDA in recovery.
Average analyst target price ~$3 (range $1.75–$3.50), implying +15–40% upside from current levels.
Majority consensus Hold, but with upside if the cycle turns.
Significant Risks (not a "safe" stock)
Liquidity and Debt: High burn rate in 2025; recovery is needed to avoid drastic measures (dilution, asset sales).
Cyclical Defaults: If pulp prices do not rebound in 2026 → more losses and pressure on covenants.
Extreme Volatility: Low beta but brutal drawdowns in bear markets. - Dividend: Previous payments ~$0.075 quarterly (yield ~11–12% at current prices), but suspended or at risk due to the current crisis.
Conclusion: Buy Mercer in 2026?
Mercer International is a classic deep value cyclical stock with high risk/high reward:
If pulp prices rise modestly + the cost-cutting program bears fruit + mass timber takes off → the stock could multiply by 2–3x in 18–36 months (very high total return).
If the cycle is prolonged → significant risk of further dilution or worse.
This is a speculative position suitable for investors with a high risk tolerance, a 2–4 year time horizon, and who believe in the recovery of the forestry/pulp sector in 2026. It is not for conservative portfolios or for those who cannot tolerate seeing an additional -30–50% before the rebound.
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