Canfor has been expanding stateside, building new sawmills in Louisiana and Alabama
The forest products producer is still standing—and dirt cheap—in the face of mighty interest-rate headwinds
The stock: Canadians typically wait for Boxing Day to load up on bargains, but with encouraging signs of a soft landing for the North American economy next year and a tentative uptick in stock markets, some think you won’t see lower prices for equities in the near future than right now. If you still demand a margin of safety, Morningstar went so far as to name Canfor Corp. (TSX:CFP) one of the 10 cheapest stocks in Canada in October. As of Tuesday, it was still trading at $23.98, or 35 percent below the investment intelligence agency’s fair value estimate of $37.
The drivers: Rising interest rates have been a blight on lumber producers, whose revenues are closely tied to new home construction. Canfor’s sales of $1.67 billion in the third quarter were down both from Q2 and the same quarter last year, reflecting “steep declines in global lumber pricing,” president and CEO Don Kayne said in a release. The Vancouver-based company has been curtailing operations, especially in B.C., where log costs are highest. Still, it managed to eke out net income of $87.4 million or 71 cents a share in the quarter, demonstrating why the Bentley family’s firm, today 30-percent owned by The Jim Pattison Group, has been around in one form or another for 84 years.
Canfor took advantage of giddy housing markets and the corresponding spike in profits in 2021 to expand its operations in Alberta, Sweden and especially the U.S. South, as well as to chop its term debt by $420 million. At just a sliver above 3, its price-to-earnings ratio verges on deep-value territory. Things could always get worse in the housing market, but patient investors know that new growth will eventually return for cyclical stocks like Canfor.
Word on the street: Scotia Capital analyst Benoit Laprade bestowed Canfor a “sector outperform” rating and a $33 target price this week, down from $36 previously but still implying a 38-percent return.
Coming & going: New Gold (TSX, NYSE American: NGD) has a new CEO. The Vancouver-based gold and copper miner announced Nov. 23 that it was promoting Patrick Godin, formerly executive VP and chief operating officer, to president and CEO, succeeding Renaud Adams.