TD Cowen Downgrades Mercer International Inc. (MERC) on Leverage Concerns Despite Pulp Market Stabilization

Company Overview - Mercer International Inc. (NASDAQ:MERC) operates through two segments: Pulp and Wood Products, manufacturing northern bleached softwood kraft pulp and operating facilities across multiple regions [3]. Financial Performance - In the third-quarter 2025 earnings call, Mercer reported negative EBITDA of $28 million, which included a $20 million non-cash inventory impairment, compared to negative EBITDA of $21 million in the prior quarter [2]. - The company has outlined plans to achieve $30 million in cost savings and reliability improvements by the end of 2025, as part of a broader initiative targeting $100 million in profitability improvement by the end of 2026 [2]. Market Position and Outlook - The mass timber segment has built an $80 million order backlog and is expected to see improved performance in 2026 as markets recover [2]. - Despite near-term financial pressures, Mercer's cost-reduction initiatives, operational leverage to a pulp recovery, and growing engineered wood backlog provide upside potential if pricing stabilizes, offering speculative investors exposure to a cyclical rebound opportunity [2]. Analyst Ratings - On January 21, TD Cowen downgraded Mercer International Inc. from Hold to Sell and raised its price target to $2.25 from $2, citing high leverage and expected negative free cash flow despite pulp markets nearing a cyclical floor [1].