West Fraser Timber Co Ltd T.WFG

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Overview: Sentiment and Stocks

Lumber futures prices have fallen more than 25% over the past month. That has some analysts suggesting that the housing recovery is dead. A pair of insiders at West Fraser Timber (WFG) is clearly taking an opposite view, as evidenced by some recent insider buying. When West Fraser Timber reported Q1 results on May 6th, sales came in at US$2.3 billion, up from US$890 million in Q1 2020. It reported diluted earnings of US$6.96 per share, up from a loss of US$0.09 per share in the comparable period. Results include the contribution of Norbord, the world's largest OSB (oriented strand board) producer, acquired for US$3.1 billion in shares in a deal closed on February 1st.

Management was upbeat about the outlook going forward. It cited low mortgage rates, low volumes of homes available for resale, favourable demographics, increasing acceptance of remote working, and an underlying housing construction deficit due to several years of underbuilding as driving demand for new housing in North America. It also expects an ageing housing stock and increased repair and renovation spending to drive strong lumber, plywood, and OSB demand. In Europe, it expects demand for OSB as an alternative to plywood to continue growing. However, it did caution that input costs for its EWP (engineered wood products) are expected to remain elevated as demand exceeds the available log supply in BC. A strengthening Canadian dollar and strong global economic recovery are also expected to contribute inflationary pressures to input costs. On June 8th, West Fraser Timber announced it would be increasing its quarterly dividend to $0.25 per share, from $0.20 previously.