Lumber prices hit an eight-month high of $1,271 per 100 board feet on February 18, which was slightly lower than the all-time $1,515 high hit last year May. This can be attributed to exacerbated global supply chain disruptions following Russia’s invasion of Ukraine. The Canadian truckers strike, labor shortages, and harsh weather conditions have also contributed to the lumber shortage. Lumber prices surged nearly 30% in the first two weeks of February.
Strong demand for lumber due to robust housing demand bodes well for the industry. And spending from the Biden administration’s $1.2 trillion bi-partisan infrastructure bill is expected to boost demand in the coming months.
Given this backdrop, we think lumber stocks UFP Industries, Inc. (UFPI), Boise Cascade Company (BCC), Canfor Corporation (CFPZF), which are currently trading at discounts to their peers, could be ideal bets now.
UFP Industries, Inc. (UFPI)
UFPI, through its subsidiaries, engages in manufacturing and marketing wood and wood-alternative products in North America, Europe, Asia, and Australia. The Grand Rapids, Mich., company operates through three segments: Retail; Industrial; and Construction.
Last December, UFPI announced the acquisition of Ultra Aluminum Manufacturing Inc. through its subsidiary Deckorators, Inc for $25 million. The transaction expands UFPI’s product portfolio by adding aluminum fencing to its current lineup.
During the fourth quarter, ended Dec. 31, 2021, UFPI’s net sales increased 45.3% year-over-year to $2.02 billion. Its earnings from operations rose 121% from its year-ago value to $195 million. And the company’s adjusted EBITDA increased 89% year-over-year to $223.30 million, while its EPS grew 116.7% from the prior-year quarter to $2.21.
The stock’s 0.65 forward Price/Sales multiple is 54.4% lower than the 1.41 industry average. In addition, its 6.60 forward EV/EBITDA ratio is 41.4% lower than the 11.26 industry average.
The $1.83 consensus EPS estimate for its fiscal first quarter (ending March 2022) represents a 9.7% improvement year-over-year. And the$2.03 billion consensus revenue estimate for the current quarter represents an 11.2% increase from the same period last year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of UFPI have gained 27.4% in price over the past six months to close the last trading session at $88.74.
It is no surprise that UFPI has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock has an A grade for Sentiment, and a B for Value. In the B-rated Industrial - Wood group, it is ranked #3 of 6 stocks.
In total, we rate UFPI on eight distinct levels. Beyond what we have stated above, we have also given UFPI grades for Growth, Momentum, Stability, and Quality. Get all the UFPI ratings here.
Boise Cascade Company (BCC)
Headquartered in Boise, Idaho, BCC is a producer of wood products and wholesale distributor of building products in the United States and Canada. The company operates through Wood Products and Building Material Distribution (BMD) segments. Its products are used in residential housing construction, including single/multi-family, manufactured homes, and industrial applications.
In January, BCC announced the expansion of its Building Material Distribution operations in Minnesota and Northern Kentucky. With this expansion, BCC should be able to minimize the usage of offsite storage areas, thereby boosting its operational efficiency and improving its rail capacity.
BCC’s net sales increased 21.1% year-over-year to $1.78 billion in the fourth quarter, ended Dec. 31, 2021. Its income from operations grew 129.4% from the year-ago value to $227.38 million, while its net income improved 550.3% year-over-year to $169.08 million over the period. The company’s EPS increased 545.5% from its year-ago value to $4.26.
In terms of forward non-GAAP P/E, BCC is currently trading at 6.072x, which is 66.5% lower than the 18.1x industry average. Its 0.4 forward Price/Sales multiple is 71.4% lower than the 1.41 industry average.
Analysts expect BCC’s revenue for its fiscal year 2022 first quarter (ending March) to come in at $2.13 billion, representing 17% year-over-year growth. The $6.19 consensus EPS estimate for the current quarter indicates a 64.6% improvement from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 56.5% in price to close the last trading session at $81.20.
BCC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. BCC has an A grade for Value and Momentum. It also has a B grade for Growth, Quality, and Sentiment. The stock is ranked #1 of 6 stocks in the Industrial - Wood industry.
In addition to the grades I have just highlighted, view BCC Rating for Stability here.
Canfor Corporation (CFPZF)
CFPZF is a Vancouver, Canada-based integrated forest products company. Its operations include logging, manufacturing, and selling finger-jointed lumber, EWPs, wood chips, and wood pellets, along with producing and selling pulp and paper products, including softwood kraft pulp and kraft paper.
On March 1, 2022, CFPZF acquired Millar Western Forest Products Ltd.’s solid wood operations. This transaction should aid the company in meeting the demand for high-quality, sustainable wood products.
Last month, CFPZF signed a Letter of Intent to sell its Mackenzie Forest tenure in British Columbia for a combined value of $70 million. This should allow CFPZF to streamline its operations, significantly reducing operating expenses.
CFPZF’s net sales increased 40.9% year-over-year to CAD7.68 billion ($6 billion) in its fiscal year 2021 (ended December 31, 2021). Its operating income rose 161.6% from the year-ago value to CAD1.91 billion ($1.49 billion). The company’s net income increased 160.7% year-over-year to CAD1.46 billion ($1.14 billion).
The stock’s 0.43 forward EV/sales multiple is 74.9% lower than the 1.73 industry average. In addition, CFPZF’s forward Price/Sales and EV/EBITDA ratios of 0.5 and 1.89, respectively, are significantly lower than the 1.42 and 7.79 industry averages.
Shares of CFPZF have risen 14.9% in price over the past six months to close the last trading session at $23.63.
CFPZF has an overall B rating, which translates to Buy in our proprietary rating system. Also, it has a B grade for Value, Momentum, and Quality. The stock is ranked #2 of 6 in the Industrial - Wood industry. Click here to see CFPZF ratings for Growth, Sentiment, and Stability.
UFPI shares were trading at $87.02 per share on Friday afternoon, down $1.72 (-1.94%). Year-to-date, UFPI has declined -5.20%, versus a -7.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
3 Cheap Lumber Stocks to Add to Your Portfolio: Boise Cascade, Canfor, and UFP Industries StockNews.com
