RE:RE:UPDATING ???? With wood product prices sitting at record levels in what is normally the seasonally slowest period of the year, RBC Dominion Securities analyst Paul Quinn expects further gains to be on tap for 2021.
“While 2020 was one for the record books, we think 2021 could be even better due to very strong housing markets and limited capacity to increase production,” he said.
In a research report titled It feels good to be a Wood Product producer, Mr. Quinn pointed to five themes to watch for the next year, “1) Get ready for another year of record prices; 2) Expect heightened M&A activity; 3) Mass Timber should continue to grow; 4) Lumber and Plywood imports should rise; and 5) Expect to see more capacity additions.”
“Lumber markets have clearly been on a wild ride in 2020, with COVID-19 putting a temporary halt to construction, only to come roaring back as lockdown restrictions eased,” he said. “While new residential construction has been supported by record-low interest rates, the story of 2020 was the record level of repair & remodel demand, which strained supply to home centers and left the market short of more consumer-oriented products such as treated lumber.
“As we head into 2021, we have seen unprecedented pricing levels to close out 2020 with both SYP [southern yellow pine] and W. SPF [western spruce-pine-fir] prices moving higher following a pullback in October/November. With demand likely to get stronger as dealers get ready for what should be a very strong spring building season, we expect that prices will remain at a high level during the first half of the year.”
Mr. Quinn called West Fraser Timber Co. Ltd. (
) his “Top Idea” for 2021 in Canada.
“In addition to record lumber pricing, the company should benefit from the acquisition of Norbord sometime in Q1 and a U.S. stock listing, forming the world’s largest wood product company,” he said. “We think U.S. investors will see WFT as the best way to play this cycle. Our top Small Cap idea is Interfor (
), which should benefit from record lumber pricing, particularly in the U.S. South.”
He raised his target for West Fraser jumped to $110 from $90 with an “outperform” recommendation. The average on the Street is $94.33, according to Refinitiv data.
For U.S. companies, he pointed to Louisiana-Pacific Corp. (LPX-N).
“In addition to benefiting from record OSB prices, we think that the company’s growing (and highly profitable) siding business remains underappreciated by investors. We view LP as a growing free cash flow generator. Our favorite Timber REIT is Weyerhaeuser (WY-N) due to the company’s wood product exposure and high quality timberlands.”
His target for shares of Louisiana-Pacific jumped to US$50 from US$42 with an “outperform” rating. The average is US$39.38.
After raising his price forecasts for the remainder of 2020 through 2022, Mr. Quinn upgraded Western Forest Products Inc. (WEF-T) to “outperform” from “sector perform” to reflect the “increasingly positive” pricing outlook, which he said “more than offsets headwinds related to government regulatory pressure.”
His target for Western Forest Products shares rose to $1.50 from $1, exceeding the $1.30 average on the Street.
Mr. Quinn also made these target changes:
- Canfor Corp. (
, “outperform”) to $36 from $27. Average: $26. - CanWel Building Materials Group Ltd. (
, “outperform”) to $10 from $8.50. Average: $8.19. - Conifex Timber Inc. (
, “outperform”) to $2.50 from $2. Average: $2.12. - Interfor Corp. (
, “outperform”) to $34 from $24. Average: $26.83. - Norbord Inc. (
, “outperform”) to $75 from $60. Average: $55.49. - CatchMark Timber Trust Inc. (CTT-N, “outperform”) to US$11 from US$10. Average: US$11.
- PotlatchDeltic Corp. (
, “outperform”) to US$58 from US$52. Average: US$51.33. - Weyerhaeuser Co. (WY-N, “outperform”) to US$40 from US$35. Average: US$33.78.