Stella-Jones Inc T.SJ

Alternate Symbol(s): STLJF

Forest Products Lumber & Wood Production

Stella-Jones Inc. is a Canada-based producer of pressure-treated wood products. The Company supplies various electrical utilities and telecommunication companies with wood utility poles and North America’s short line and commercial railroad operators with railway ties and timbers. The Company also provides industrial products, which include wood for railway bridges and crossings, marine and foundation pilings, construction timbers and coal tar-based products. Additionally, the Company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing Canadian customers through its national manufacturing and distribution network. The Company operates 45 wood treating plants and a coal tar distillery. These facilities are located across Canada and the United States and are complemented by a procurement and distribution network.

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Stella-Jones Inc

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Post by retiredcfon May 12, 2022 1:19pm

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Post# 34678434

TD

Have a $50.00 target. GLTA

Stella-Jones Inc.

(SJ-T) C$34.50

Modest Q1/22 Beat; Outlook Remains Constructive Event

Stella-Jones reported Q1/22 EBITDA that was modestly above consensus (while outperformance was more meaningful vs. our forecast). Revenues were better-than-expected, while margins underperformed.

Impact: SLIGHTLY POSITIVE, but target price down on a reduction in our target valuation multiple

Q1/22 EBITDA was $88mm vs. consensus/TD at $84mm/$75mm. EPS was $0.73 vs. consensus/TD at $0.68/$0.54.
EBITDA margin was 13.5% (-240bps y/y) vs. consensus/TD at 14.2%/13.3%. Lower y/y margins were driven by cost increases, which outpaced sales price increases, largely due to the time lag in contractual price adjustments.
Revenue was $651mm (+4.5% y/y) – above consensus/TD at $595mm/ $563mm. Consolidated organic revenue growth was +2% y/y vs. our -13.4% forecast.
Q1/22 Buyback Activity: SJ repurchased 999k shares for $40mm.
Outlook Commentary: SJ reaffirmed its 2022-2024 outlook targets. Commenting on current market dynamics, SJ noted that demand for utility poles remains robust, while railway tie trends were also said to be positive for 2022 (although SJ acknowledged supply tightness for untreated ties). For residential lumber, SJ noted that Q1/22 sales exceeded expectations, but said the peak summer season will be more telling. Regarding margins, management noted that although contractual price adjustments are being implemented to cover escalating costs, SJ anticipates a degree of lag until the cost environment stabilizes.
Our 2022 and 2023 estimates have increased modestly. However, our target price declines to $50.00 (from $56.00) due to a reduction in our target valuation multiple (reflects the recent contraction in market valuations).

TD Investment Conclusion

We continue to view SJ as a high-quality company that offers investors a mix of growth potential and defensive characteristics. Given the significant disconnect between its current and historical valuation, we see SJ as offering investors compelling risk/reward potential. Meanwhile, we see further potential upside from possible acquisitions. We reiterate our ACTION LIST BUY rating.