this is part of a JP Morgan report on the company

VRS Management Optimistic About Demand -- Raising
Estimates
Price: $2.90

We are increasing our FY09 EPS forecast for Verso from a loss of $4.46 to a loss of
$3.56, which primarily reflects the (1) 3Q beat to our forecast; (2) improved coated
paper shipments; (3) higher pulp pricing; and (4) continued cost savings. We are also
taking this opportunity to raise our 2010 EPS forecast from a loss of $2.26 to a loss of
$1.28 on the back of a slight increase to our coated paper shipment forecast and higher
pulp pricing. All in, we are encouraged by management’s optimism for 2010, the
30%+ increase in order bookings over the past few months, and its continued focus on
production discipline, cost savings, and liquidity.

Strong demand in 3Q09. VRS’ 3Q paper shipments were almost flat with 3Q08
levels (decreasing 3% y/y). AF&PA industry data indicated CFS and CGW
shipments declined ~14% y/y during 3Q09 compared to a ~27% decrease during
2Q09. VRS’ shipments were helped by (1) low customer inventories; (2)
decreased y/y imports (given the strong EUR); (3) higher catalog mix, which has
shown signs of improvement; and (4) seasonality. Looking forward, we remain
guarded regarding a near-term material pickup in underlying coated demand as we
believe advertisers remain cautious. Indeed, 3Q09 magazine ad pages declined
27% y/y (27% YTD) while industry trade publications point to a 2-3% y/y decline
in 2010. We have modestly increased our paper shipments for 4Q09 and 2010 and
anticipate a 10% y/y and 12% y/y increase, respectively.

Coated paper pricing remains stable for now. 3Q08 coated prices for VRS
were 6% lower q/q as an oversupplied market led to pricing decreases. Recently,
buyers pushed back on producers’ $40/ton CFS and $20/ton CGW price hikes on
the back of what we believe is still an oversupplied market. September inventories
for CGW and CFS were 18.8% and 3.4% higher, respectively, than the historical
averages. We believe further capacity reduction is necessary to provide support for
pricing increases and are encouraged by recent U.S. capacity closures (Sappi) and
grade shifts (namely New Page and Verso). We are forecasting stable y/y pricing
for the 4Q and 2010 and do not forecast a pricing increasing until 2Q10.

Maintain Neutral. We continue to be pleased with VRS’ focus on production
discipline, FCF generation, and cost containment. Furthermore, we are encouraged
to see signs of demand pickup (particularly in catalogs); however, we remain tepid
on a material pickup given continued weakness in the advertising market and an
oversupplied market. Against this background, we maintain a Neutral rating.