Market Movers On the Rise Stella-Jones Inc. saw gains with the premarket release of better-than-anticipated first-quarter results, driven by higher sales and pricing power.
The Montreal-based manufacturer of pressure treated wood products reported revenue of $651-million, up 4.5 per cent year-over-year and above the Street’s forecast of $589-million. Adjusted earnings per share of 73 cents beat the consensus projection by 5 cents.
“SJ reiterated its prior medium-term guidance,” said National Bank Financial’s Maxim Sytchev said in a note. “As a refresh, post Q4/21, the company outlined a plan to increase capital returned to shareholders by 50 pe cent over the next three years to $500-$600-million in the form of NCIB and dividends. The company will expand its capex program in the utility poles segment (that will see high single-digit organic growth) by $90-100-million. Resi price normalization after 2021 highs will reduce sales as a percentage of the total to around 20 per cent (in Wednesday’s press release management is looking for the busy summer season to better gauge the divisional outlook). With growth in other segments expected to be more visible, the company sees ties, utilities and industrial product categories to represent 75-80 per cent of the top line.”
“SJ shares are down 14 per cent year-to-date, 200 basis points better than tech-laden S&P 500 but lagging TSX at down 6 per cent (KOP:NYSE – not rated is down 26 per cent). As was the case last quarter, Koppers’ weakish RUPS results did not translate into SJ’s disappointment; more than anything else, the company appears to be effectively managing the fluid supply/inflation dynamic by leaning into its pricing power, even though there are some lagging dynamics. Under previous management’s leadership (and greater amount of M&A), the shares had gotten to as high as 14 times EV/EBITDA; now, they are fetching 8.1 times 2022; Wednesday morning’s print is also not suggesting to us that there is a need for negative earnings revisions, making the multiple a real number. With sectoral rotation out of unprofitable, high-multiple names, we are still waiting for SJ to catch a bid but this classical value name, with now a more deliverable return of capital strategy should provide a respectable risk-adjusted return on prospective basis.”