Seems too cheap to ignore so I just initiated a position this morning. GLTA
Desjardins Securities analyst Benoit Poirier thinks investor reaction to Stella Jones Inc.’s (SJ-T) three-year strategic plan through 2024 is “highly unjustified.”
Shares of the Montreal-based producer of industrial pressure-treated wood products are down 1 per cent since the March 9 announcement, versus a 4-per-cent gain for the S&P/TSX composite index.
However, Mr. Poirier called thinks the plan offers “compelling value-creation opportunities” with targets through 2024 of 4-6-per-cent revenue growth, a stable EBITDA margin of 15 per cent and $500-$600-million allocated for capital deployment toward buybacks and dividends.
“We believe SJ could be worth $65 per share by 2024 if management delivers on its 2022–24 targets,” he said. “We derive another $8 per share of value creation if management can execute on its M&A pipeline of US$200-million of revenue, implying a potential return of up to 100 per cent through 2024.
“We believe the underperformance is partly driven by S&P/TSX Capped Materials Index fund flows. SJ is the 29th largest stock in the 52-stock index with an index weight of 0.55 per cent. The index is up 25 per cent since beginning of 2021 while SJ is down 20 per cent over the same period. This can be attributed to the strong performance of commodities (Bloomberg Commodity Index up 59 per cent over the same period). The inverse relationship between SJ’s stock and the S&P/TSX Capped Materials Index has been very strong in the short term as investors, whose performance is benchmarked against the index, have increased their exposure to commodities (ie mining companies) to the detriment of SJ. That said, over the long term, the relationship is much weaker (SJ is up 345 per cent since the beginning of 2011 vs down 7 per cent for the index over the same period).”
Mr. Poirier reiterated his “buy” recommendation and $58 target for Stella-Jones shares. The current average on the Street is $52.31.
“Ultimately, we believe the name is still quite attractive considering the ongoing market uncertainty and SJ’s resilient attributes (90 per cent of railway tie and utility pole demand is driven by maintenance). This is a good opportunity for investors to revisit the story and buy the shares,” he said.