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What are we looking for?

Forest products stocks have been under pressure since May, 2021, when lumber prices peaked at US$1,711 per thousand board feet. With interest-rate cuts and a housing shortage in North America as potential catalysts, offset by continuing recession fears, are these stocks worth looking at?

The screen

We used StockCalc’s screener to select the top 10 listed forest product stocks by market capitalization on the TSX. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
  • a price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • an adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
  • If we have analyst coverage, we may consider the consensus target price in our modelling.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code “Globe30,” which offers a 30-day free trial and special pricing for the second month.

What we found

Hunting for bargains in forestry stocks

NameTickerMarket Cap ($ Mil)Recent Close ($)StockCalc Val ($)Diff (%)DCF Value($)Price Comps($)ABV ($)Analyst Target ($)1 Year Return(%)Dividend Yield(%)
West Fraser TimberWFG-T 9,108.4 111.76117.44 5.1 -21.87125.87198.05136.009.71.5
Stella-JonesSJ-T 4,817.2 85.1181.97 (3.7)67.2875.2576.7794.0041.51.2
CanforCFP-T 1,818.5 15.3218.53 21.0 -32.2425.3740.5421.00-27.60.0
CascadesCAS-T 969.7 9.6311.70 21.5 -20.784.3613.9511.80-15.04.9
InterforIFP-T 946.3 18.4123.15 25.7 -53.6125.4041.8026.00-19.40.0
Acadian TimberADN-T 304.7 17.5119.79 13.0 25.025.8620.1120.0012.06.5
Western Forest ProductsWEF-T 156.8 0.500.65 30.0 -2.100.732.350.65-54.05.1
GoodfellowGDL-T 124.3 14.6215.09 3.2 19.2412.3613.690.0030.16.8
Canfor Pulp ProductsCFX-T 107.6 1.651.84 11.5 -16.004.996.301.94-13.90.0
GreenFirst Forest ProdsGFP-T 94.1 0.530.64 20.8 -

This industry is comprised of companies that grow, mill and manufacture wood and wood products for construction or manufacture paper and paper-related products from wood pulp or other fibres. As with many industries, stock prices are very dependent on the underlying commodity prices. Lumber prices are currently in the US$526-per-thousand-board-feet range, down from the US$620 level in early March but up from last fall’s US$480 range. Interfor’s most recent quarterly report summarized the lumber market as follows: “Lumber prices continued to reflect an imbalance of lumber supply and demand, with demand continuing to be impacted by the elevated interest rate environment and ongoing economic uncertainty.” On April 1, a number of companies announced a US$40-per-tonne increase for Northern Bleached Softwood Kraft pulp (NBSK), taking it to US$580 per tonne.

The long-standing lumber trade dispute continues also. In February, the U.S. Commerce Department said it plans to raise duties on Canadian softwood lumber to 13.86 per cent, from the current 8.05 per cent. Earlier this month, the North American free-trade agreement (NAFTA) Chapter 19 panel ruled that the U.S. final countervailing duty determination on softwood lumber was inconsistent with U.S. law.

Six of the 10 stocks pay a dividend with yields ranging between 1.2 per cent and 6.8 per cent. Not shown in this table but helpful in the analysis is that only three of these 10 companies have positive earnings and they all have positive one-year stock price returns. Also, the average price-to-book (PB) ratio for these stocks is 0.8 with nine of the 10 stocks below 1.0. This industry has not seen an average PB ratio above one for two years now. Pre-COVID, PB ratios ranged between one and two for this industry. The TSX 60 currently has a PB ratio of 2.1.

Let’s look at a few companies:

Interfor Corp. IFP-T produces and sells lumber, timber and other wood products. On April 30, Interfor announced plans to reduce its lumber production by approximately 175 million board feet between May and September of 2024, representing almost 10 per cent of its operating production for that period. Analyst consensus has dropped about $2 per share recently but still sits at $26 per share. Our models are showing upside over the next year with a weighted valuation of $23.15.

Cascades Inc. CAS-T produces, converts and markets packaging and tissue products composed mainly of recycled fibres. The company is organized into three main business segments: Containerboard, Specialty Products and Tissue Papers. Our models are showing upside over the next year with a weighted valuation of $11.70, in line with current analyst consensus.

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from the models and analyst target data if used.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/06/24 3:04pm EDT.

SymbolName% changeLast
West Fraser Timber CO Ltd
Stella Jones Inc
Canfor Corp
Cascades Inc
Interfor Corp
Acadian Timber Corp
Western Forest Products Inc
Goodfellow Inc
Canfor Pulp Products Inc
Greenfirst Forest Products Inc

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