Benoit Poirier, an analyst at Desjardins Securities, reaffirmed his bullish stance on Stella-Jones Inc. after hosting marketing meetings earlier this week, saying management’s “positive tone” increased his confidence and believing “future capital deployment should unlock value for long-term investor.”
“Given SJ recently completed two acquisitions (not part of 2025 targets) as well as the robust demand across many categories, its 2025 targets are poised for upward revisions, in our view,” he said.
“Strong market fundamentals across utility poles and railway ties. Key levers include (1) an ageing network, (2) more recurring weather events, (3) heavier loads requiring bigger poles, (4) increased demand for electricity due to EVs, and (5) the sizeable ongoing infrastructure plan in Canada and the US. The acquisition of 1 million additional untreated railway ties should provide greater availability to better serve non–Class l/ commercial customers, which have a better margin profile and should impact 2024 revenue positively.”
Mr. Poirier said he’s confident the Montreal-based manufacturer of pressure treated wood products can expand its 2024 EBITDA margin through increased exposure to utility poles and the incremental tie opportunity.
“Street consensus assumes 16.1 per cent, which is too pessimistic, in our view,” he said. “Recall that each 1 per cent improvement in EBITDA margin creates $7 per share of value.”
“SJ reiterated that the US$100–150-million of acquirable wood-treating revenue is still on the table, but it remains focused on the core business and will likely not expand into new adjacent markets in the short term. We believe SJ is well on track to achieve its investor day target of more than $500-million of capital returned to shareholders by 2025.”
The analyst maintained his “buy” rating and target of $82 for Stella-Jones shares. The current average on the Street is $77.
“In an environment of increased market volatility, we believe SJ’s return profile is quite compelling for a company with resilient attributes (90 per cent of demand for railway ties and utility poles is driven by maintenance),” he said.