The price of lumber has been rallying in the United States since the start of the COVID-19 pandemic. Between November 2021 and January 2022, lumber prices doubled to beyond the $1,000 per thousand board feet mark. This has occurred in varying degrees because of flooding in British Columbia that caused supply chain disruptions and an increase in tariffs on Canadian lumber imports.
As of February 10, lumber prices had risen nearly 30% for the month, consistent with a broader rally in global commodities as economies reopen. Furthermore, the weakening U.S. dollar is heightening price pressures. Lumber prices are expected to trade at $1,017.47 per thousand board feet by the end of this quarter, rising to $1,427.98 in 12 months.
Given this backdrop, we think lumber stocks West Fraser Timber Co. Ltd. (WFG), Boise Cascade Company (BCC), and Canfor Corporation (CFPZF) might be ideal investments.
West Fraser Timber Co. Ltd. (WFG)
WFG is a diversified wood products company that produces and sells lumber, panel, pulp, and paper in Western Canada and the southern United States. The company’s offerings include spruce-pine-fir, Douglas Fir-Larch, treated wood products, and bioproducts. It is based in Vancouver, Canada.
On December 7, WFG declared a quarterly dividend of $0.20 per share on its common shares and Class B common shares, which was payable on Jan. 11, 2022. This reflects upon the company’s cash generation ability.
On December 6, WFG completed the acquisition of an oriented strand board (OSB) mill near Allendale, South Carolina. Earlier, on December 1, the company announced that it would proceed with closing its acquisition of the Angelina Forest Products lumber mill located in Lufkin, Texas. Both the acquisitions might add to WFG’s operative capability.
For its fiscal third quarter, ended September 30, WFG’s sales increased 86% year-over-year to $2.36 billion. Its operating earnings rose 72.1% from the prior-year quarter to $630 million. Its earnings and EPS improved 75.6% and 9.9%, respectively, from the same period in the prior year to $460 million and $4.20.
Analysts expect WFG’s EPS to come in at $6.55 for its fiscal quarter ending March 2022. Furthermore, WFG has an impressive surprise earnings history; it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 31.6% in price over the past year and 33% over the past six months to close yesterday’s trading session at $97.88.
WFG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
WFG has a Quality grade of A and a Momentum grade of B. In the six-stock Industrial – Wood industry, it is ranked #3. The industry is rated A. Click here to see the additional POWR Ratings for WFG (Growth, Value, Stability, and Sentiment).
Boise Cascade Company (BCC)
BCC in Boise, Idaho, operates as a manufacturer of wood products and distributor of building materials in the United States and Canada. The company operates through the Wood Products and Building Material Distribution segments.
On February 7, BCC declared a quarterly dividend of $0.12 per share to holders of its common stock, payable on March 15, 2022. This reflects upon the company’s ability to pay back its shareholders.
On January 4, BCC announced the expansion of its Building Material Distribution (BMD) operations in Minnesota and Northern Kentucky. The footprint expansion is expected to bolster the company’s engineered wood products (EWP) line and increase its commodity offering, which should create operational efficiencies.
On November 4, BCC announced that it had expanded its Ohio Valley BMD network, with the intended construction of a new distribution center. Jeff Strom, Executive Vice-President of BMD division, said, “Moving to this new distribution facility will enable us to expand our product offering and deepen our breadth of inventory for our current customers.”
BCC’s sales increased 18.3% year-over-year to $1.88 billion in its fiscal third quarter ended September 30. This can be attributed to a 19.7% rise in building material distribution sales from the prior-year quarter to $1.72 billion. For the nine months ended September 30, the company’s cash balance stood at $786.89 million, up 56.1% from the prior-year period.
The $2.35 consensus EPS estimate for the quarter ended December 2021 indicates a 256.1% year-over-year increase. And the $1.58 billion consensus revenue estimate for the same quarter reflects a 7.2% rise from the prior-year period. In addition, BCC has topped consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 52.2% in price and 41.3% over the past six months to close yesterday’s trading session at $79.35.
It is no surprise that BCC has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Value and a B grade for Growth, Momentum, and Quality. It is ranked #1 in the Industrial – Wood industry. To see the additional POWR Ratings for Stability and Sentiment for BCC, click here.
Canfor Corporation (CFPZF)
CFPZF, headquartered in Vancouver, Canada, operates internationally as an integrated forest company. The company operates through the segments of Lumber and Pulp, and Paper. It engages in the manufacture and sale of finger-jointed lumber, high-grade MSR lumber, and engineered wood products.
On December 16, CFPZF announced that it had agreed with Millar Western Forest Products Ltd. to acquire the company’s solid wood operations, located in Alberta, Canada for $420 million. The acquisition is expected to provide 630 million board feet of production capacity to CFPZF.
For its fiscal third quarter ended September 30, CFPZP’s sales increased 8.1% year-over-year to CAD1.68 billion ($1.32 billion). Its operating income improved 10.5% from the same period in the prior year to CAD331 million ($259.75 million), while its net income came in at CAD256.80 million ($201.52 million), up 18.9% from the prior-year quarter.
The Street’s $5.85 billion revenue estimate for the fiscal year 2021 indicates a 34.1% year-over-year improvement.
CFPZF’s shares have gained 15.3% in price over the past six months and 8.4% over the past three months to close yesterday’s trading session at $23.57.
This promising outlook is reflected in CFPZF’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. CFPZF has a Value, Momentum, and Quality grade of B. It is ranked #2 in the Industrial – Wood industry.
In addition to the POWR Rating grades we have stated above, one can see CFPZF ratings for Growth, Stability, and Sentiment here.
WFG shares were trading at $96.87 per share on Tuesday afternoon, down $1.01 (-1.03%). Year-to-date, WFG has gained 1.58%, versus a -6.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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