Several sawmills were forced to shut down amid the COVID-19 pandemic because coronavirus infections and travel restrictions led to labor shortages. However, as people spent more time at home during the worst of the pandemic last year, the demand for lumber for home renovations and do-it-yourself (DIY) projects increased.
According to the National Association of Home Builders, the price of lumber and other building materials has nearly tripled over the last year. A rising demand for housing, changing lifestyle needs, and increased remote working activity should drive demand further this year.
Because the demand for lumber is expected to be significantly higher than supply in the coming months, prices are sure to go up more. So, we think investors should bet on West Fraser Timber Co. Ltd (WFG), UFP Industries, Inc. (UFPI), and Boise Cascade, L.L.C. (BCC) because they are likely to benefit from the rise in lumber prices.
West Fraser Timber Co. Ltd. (WFG)
Based in Vancouver, Canada, WFG is a diversified wood products company that produces lumber, laminated veneer lumber (LVL), medium-density fiberboard (MDF), plywood, pulp, and newsprint, among other products. The company operates more than 60 facilities across Canada, the United States, the United Kingdom, and Europe.
WFG’s net sales of CAD 1.70 billion for its fiscal year 2020 fourth quarter ended December 31, 2020 represents a 49.6% year-over-year rise. Its operating earnings have increased 1761.3% year-over-year to CAD 515 million. The company’s net earnings have increased 971.4% year-over-year to CAD 366 million. Also, its EPS was CAD 5.34 for the quarter, compared to loss per share of CAD 0.61 in the prior-year period.
Analysts expect its EPS to be $18.61 in its fiscal year 2021, which represents a 92.5% year-over-year rise. Its revenue is expected to increase 187.1% year-over-year to $2.45 billion for the quarter ended March 31, 2021.
In February, WFG completed the acquisition of Norbord Inc. And it announced on April 6 that Norbord will redeem all its outstanding 5.75% Notes, due July 15, 2027, on May 6. Also in February, the company entered an automatic share purchase plan (ASPP) with a broker to facilitate repurchases of its common shares under its previously announced normal course issuer bid (NCIB). The stock has gained 287.3% over the past year to close yesterday’s trading session at $82.85.
It’s no surprise that WFG has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has an A grade for Growth and Quality, and a B grade for Momentum and Sentiment. Click here to see WFG’s ratings for Value and Stability as well.
WFG is ranked #3 of 6 stocks in the A-rated Industrial-Wood industry.
UFP Industries, Inc. (UFPI)
UFPI, formerly known as Universal Forest Products, Inc., designs, manufactures, and markets wood and wood-alternative products. With more than 170 affiliated operations, the company supplies tens of thousands of products mainly to three markets—retail, construction and industrial. Its products include preserved and unpreserved dimensional lumber, outdoor living products, decorative lawn and garden products, and engineered wood components.
For its fiscal year 2020 fourth quarter, ended December 31, 2020, UFPI’s net sales increased 39.6% year-over-year to $1.40 billion. Its gross profit came in at $187.06 million, up 19% year-over-year. The company’s net income increased 67.4% year-over-year to $64.76 million. Also, its EPS was $1.02, which represents an 67.2% year-over-year rise.
Analysts expect the company’s EPS and revenue estimates to increase 33.8% and 49.2%, respectively, year-over-year, for the quarter ended March 31, 2021. Also, UFPI surpassed consensus EPS estimates in each of the trailing four quarters.
On April 12, 2021 UFPI announced that its wholly owned subsidiary, Sunbelt Forest Products Corporation, had closed the purchase of the operating assets of Spartanburg Forest Products, Inc. and its affiliates. Handprint, the growing home and décor business unit of UFP Retail Solutions, also signed an agreement to purchase the operating assets of Walnut Hollow Farm, Inc. The acquisition is expected to close by the end of this month. The stock has rallied 121.6% over the past year and closed yesterday’s trading session at $79.56.
UFPI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has a B grade for Momentum, Value, Sentiment, and Growth. In addition to these ratings, one can see UFPI’s ratings for Stability and Quality here.
UFPI is ranked #4 in the same industry.
Boise Cascade, L.L.C. (BCC)
BCC is an integrated wood products manufacturer and building materials distributor with operations across the United States and one manufacturing facility in Canada. It operates primarily through three segments: Wood Products, Building Materials Distribution, and Corporate and Other. The company's products are used in new residential construction, residential repair-and-remodeling projects, light commercial construction and industrial applications.
BCC’s $1.47 billion in net sales for its fiscal year 2020 fourth quarter (ended December 31, 2020) represents a 33.6% year-over year rise. Its adjusted EBITDA was $113.14 million, which represents a 150.1% year-over-year increase. The company’s net income also increased 77.5% year-over-year to $26 million. Also, its EPS came in at $0.66, up 78.4% year-over-year.
Analysts expect BCC’s EPS and revenue to increase 693.5% and 43.5%, respectively, year-over-year for the quarter ended March 31, 2021.
The company paid a quarterly dividend of $0.10 per share to holders of its common stock, on March 15. BCC opened its second door shop in Texas in January, representing the company’s ninth door shop in the United States. The stock has gained 148.1% over the past year and closed yesterday’s trading session at $66.81.
BCC’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our POWR Ratings system. It has an A grade for Growth and Value, and a B grade for Momentum and Sentiment. Click here to see the additional POWR Ratings for BCC (Quality and Stability).
BCC is ranked #2 in the same industry.
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WFG shares were trading at $84.54 per share on Friday morning, up $1.69 (+2.04%). Year-to-date, WFG has gained 31.56%, versus a 11.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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