RBC No change to their current and upside scenario targets of $125 and $155 for WFG. GLTA
RBC Dominion Securities’ Paul Quinn thinks the focus of the approaching first-quarter earnings season for paper, packaging and forest products companies will almost exclusively be focused on the relationship between rising commodity prices and the ability to manage soaring costs.
In a research report released Thursday, the equity analyst said significant price gains have been offset by increased labour, energy, chemical, and transportation costs that are limiting margin expansion.
“In our view, OSB and lumber producers have been able to most successfully offset inflationary pressures with price, while packaging and tissue producers have been slower to react,” said Mr. Quinn. “The slower-than-expected implementation of price increases could result in negative surprises and guidance revisions.”
To reflect “a combination of lower commodity price expectations, weakening fundamentals, and a less constructive outlook,” Mr. Quinn cut his target for these stocks:
* Canfor Corp. (CFP-T, “outperform”) to $40 from $45. The average on the Street is $43.50.
“We value Canfor based on a 4.5 times blended valuation multiple using our Trend EBITDA estimate of $900-million (85-per-cent weighting) and our 2022 EBITDA estimate of $1.6 billion (15-per-cent weighting),” he said. “We believe the company should trade below the low end of the typical range for Canadian Paper and Forest Products companies (range 5.0 times to 7.0 times), due to the company’s heavier exposure to B.C. and an uncertain capital allocation strategy.”
* Canfor Pulp Products Inc. ( “sector perform”) to $6 from $7. Average: $6.70.
“Our $6 price target is based on a blended 3.25 times EV/EBITDA multiple on our trend EBITDA of $175-million (weighted 85 per cent) and our 2022 EBITDA estimate (weighted 15 per cent) of $79-million,” he said. “We believe that Canfor Pulp shares should trade below the typical range for Canadian Paper and Forest Products companies (5.0 times to 7.0 times) given the tight fiber supply situation in B.C., partially offset by momentum in pulp pricing.”
* Conifex Timber Inc. ( “outperform”) to $2.50 from $3. Average: $2.92.
“Our $2.50 price target is based on a blended 4.25 times EV/EBITDA multiple on our trend EBITDA (weighted 85 per cent) of $25-million and our 2022 EBITDA estimate (15-per-cent weighting) of $56-million,” he said. “We believe that CFF should trade near the low end of the typical range for Canadian Forest Product companies (range 5.0 times to 7.0 times) given their exposure to British Columbia’s unfavourable operating conditions.”
* Interfor Corp. (“outperform”) to $45 from $50. Average: $50.33.
“.We value Interfor on a 5.5 times EV/EBITDA multiple on our trend EBITDA estimate of $450-million (85 per cent) and our 2022 EBITDA estimate of $1.2 billion (15-per-cent weighting),” he said. “We believe the shares should trade at a multiple near the middle of the typical Canadian Paper & Forest Products company trading range (5.0 times to 7.0 times).”
He raised his target for Vancouver-based Mercer International Inc. (MERC-Q) to US$18 from US$16 with an “outperform” rating. The average is US$16.30.
“In Canada, our favorite names are Interfor, Western Forest Products, Canfor, and Cascades. In the United States, our favorite names are Louisiana-Pacific, West Fraser, James Hardie, and Weyerhaeuser,” said Mr. Quinn.