Scotiabank Scotia’s Jonathan Goldman resumed Stella-Jones Inc. with a “sector perform” rating and $89 target. The average is $91.14.
“Stella-Jones is the leading producer of pressure-treated wood products in North America. The company’s main end-markets – Utility Poles and Railway Ties – should be beneficiaries of generational infrastructure spend that is still in early days. But with the shares up 70 per cent in the LTM [last 12-months] and trading near all-time highs, we believe most of the upside has already been priced-in. 2024 estimates (and 2025 valuations) already reflect multi-year pole tailwinds, in our view. At the same time, we see emerging risks as competitors increase capacity and capabilities, while upcoming U.S. federal elections may impact the timing/amount of government funding (re. IIJA and IRA). We see low probability of material earnings revisions in Railway Ties and Residential Lumber, and while the M&A opportunity set seems sufficient, the pipeline will likely be spread out over several years. With the shares trading at a 3.2-per-cent FCF yield on our 2024, we view the risk/reward as balanced.”