Stella-Jones Inc T.SJ

RBC

[retiredcf]

January 31, 2024

Stella-Jones Inc.

Connecting the Dots: SJ flash read-through – US steel producers point to infra spend up y/ y in 2024

TSX: SJ | CAD 79.54 | Outperform | Price Target CAD 91.00

Sentiment: Neutral

Our take. US steel producers reported results this week and last, with commentary surrounding US infrastructure spending neutral (positive bias) for Stella-Jones in our view. Nucor highlighted in its earnings deck that it expects infrastructure spending on utilities to be up +22% y/y in 2024 versus consensus expectations for SJ’s Utility Poles sales to be up +18% y/y (see Exhibit 1). We view this as directionally in line with Street expectations and therefore neutral to sentiment. Our positive bias stems from our view that a meaningful ramp in utility construction spend (in line with disclosure from Nucor) could keep pole pricing elevated in 2024 despite new capacity coming online—we would view this as upside to Street margin expectations. While it is well known that SJ is a beneficiary of increased infrastructure spending, key will be the extent to which spending in 2024 represents upside to consensus EBITDA estimates that call for +1% growth y/y (on higher sales offset by lower margins). We will look for more color when Koppers reports Q4 results on February 28 (expected) and when Stella-Jones reports on February 29.