West Fraser Timber Co Ltd T.WFG

Alternate Symbol(s): WFG

Forest Products Lumber & Wood Production

West Fraser Timber Co. Ltd. is a diversified wood products company. The Company is engaged in manufacturing, selling, marketing and distributing lumber, engineered wood products, including oriented strand board (OSB), laminated veneer lumber (LVL), medium-density fiberboard (MDF), plywood, particleboard, pulp, newsprint, wood chips and other residuals and renewable energy. Its products are used in home construction, repair and remodeling, industrial applications, paper, tissues, and box materials. Its segments include Lumber, North America engineered wood products (NA EWP), Pulp & Paper and Europe EWP. Its business comprises lumber mills, OSB facilities, renewable energy facilities, pulp and paper mills, plywood facilities, MDF facilities, particleboard facilities, LVL facility, treated wood facility, and veneer facility. The Company operates approximately 58 facilities in Canada, the United States, the United Kingdom and Europe. It also offers wood preservation services.

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West Fraser Timber Co Ltd

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Post by retiredcfon Oct 25, 2021 8:35am

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Post# 34043895

TD

West Fraser Timber Co. Ltd.

(WFG-N, WFG-T) US$84.82 | C$104.98

Downgrading to BUY from Action List Buy Following Recent Gains Event

We are downgrading our West Fraser recommendation to BUY from Action List Buy following strong relative share-price performance in recent months. Modest earnings estimate increases reflect adjustments to our commodity price deck, the inclusion of the pending acquisition of a sawmill in Lufkin, Texas in our estimates, and other small revisions to our outlook. Changes are not significant enough to warrant a revision of our US$110.00 target price, The potential return to our target no longer supports our previous recommendation.

Impact: NEUTRAL

Since we added West Fraser to the Action List at the end of March, the company's share price has increased 32%, outpacing an average gain of 21% for relevant peers over this duration. In our view, this outperformance was warranted based on value-accretive capital-deployment initiatives, but the company's valuation has recently expanded faster than those of its peers.
Even after a busy period of capital deployment, West Fraser retains a flexible balance sheet. The company ended Q2/21 with net cash of $1.7 billion and available liquidity of $3.4 billion. In Q3/21, West Fraser repurchased shares for $0.9 billion and after quarter-end, announced a $300 million sawmill acquisition. Pro forma leverage metrics remain low, supporting further asset-base growth ambitions.
North American wood product prices continue to improve; momentum is uneven. Last week, the benchmark Western SPF 2x4 price closed at $622/Mfbm and the benchmark North Central OSB price closed at $500/Msf — up 62% and 28%, respectively, from Q3/21 lows. Production curtailments in Q3/21 added tension, but we attribute most recent gains to demand as surplus inventory in the channel was worked through by late-summer. Price gains of some grades have slowed in recent weeks with more measured order activity.

TD Investment Conclusion

We remain positive on West Fraser's mid-term share-price prospects, but we are taking a more conservative stance at the margin, given the company's sharp share-price recovery in recent months. We still expect above-trend earnings in 2022, partly a function of an expected protracted pace for wood product industry capacity additions. We expect that the company will remain aggressive on asset- base investments and opportunistic M&A initiatives, while returning surplus capital to shareholders.