The recent drop in lumber prices can be attributed to both supply-side recovery and demand destruction caused by rising inflation and the consequent interest rate increases enforced by the Federal Reserve. However, lumber consumption is expected to rebound.
Despite the near-term challenges, we think adding quality lumber stocks UFP Industries, Inc. (UFPI) and Boise Cascade Company (BCC) could be wise now.
According to Trading Economics global macro models and analyst forecasts, lumber will likely trade at $337.81/1000 board feet by the end of this quarter.
Moreover, the Biden-Harris Administration announced that $33.70 million from President Biden’s Bipartisan Infrastructure Bill would fund programs to boost the wood products business and promote sustainable forest management as part of its mission of investing in rural America.
Engineered wood products are helping to bring in a new era of commercial and residential buildings in urban environments, thanks to breakthroughs in technology and design. The global engineered wood market is expected to increase at a 6.5% CAGR until 2028.
UFP Industries, Inc. (UFPI)
UFPI through its subsidiaries, designs, manufactures, and markets wood and non-wood composites, and other materials in North America, Europe, Asia, and Australia. It operates in three segments: retail; packaging; and construction.
UFPI’s trailing-12-month ROTA of 18.86% is 262.6% higher than the industry average of 5.20%. Its trailing-12-month ROTC of 21.81% is 210.7% higher than the industry average of 7.02%.
UFPI has paid dividends for 29 consecutive years. Over the last three years, UFPI’s dividend payouts have grown at a 24% CAGR. While UFPI’s four-year average dividend yield is 0.95%, the company’s annual dividend of $1 yields 1.29% at the current price level.
During the fourth quarter that ended December 2023, UFPI’s packaging sales increased marginally year-over-year to $522.17 million. The company’s current assets came in at $2.26 billion for the period that ended December 2022, compared to $2.07 billion for the period that ended December 2021.
Also, its current liabilities came in at $611.84 million, compared to $776.04 million for the same period the prior year.
UFPI’s revenue is expected to increase 4.6% year-over-year to $8.41 billion in 2024. Its EPS is expected to grow 9.3% year-over-year growth to $8.46 in 2024. It has surpassed EPS estimates in all four trailing quarters. The stock has gained 9.7% over the past nine months, closing the last trading session at $77.51.
UFPI’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
UFPI also has an A grade for Value and B grade for Momentum. It is ranked first among six stocks in the B-rated Industrial – Wood industry. To access additional ratings for UFPI’s Growth, Stability, Sentiment, and Quality, click here.
Boise Cascade Company (BCC)
BCC engages in manufacture of wood products and distribution of building materials in the United States and Canada. It operates through two segments, Wood Products, and Building Materials Distribution.
BCC’s trailing-12-month ROTC of 32.31% is 360.3% higher than the industry average of 7.02%. Its trailing-12-month ROTA of 26.47% is 408.8% higher than the industry average of 5.20%.
BCC has paid dividends for four consecutive years. Over the last three years, BCC’s dividend payouts have grown at a 12.4% CAGR. While BCC’s four-year average dividend yield is 6%, the company’s annual dividend of $0.60 yields 0.97% at the current price level.
For the year that ended December 31, 2022, BCC’s net sales increased 5.8% year-over-year to $8.39 billion. Its net income grew 20.4% from its year-ago value to $857.66 million. The company’s EPS came in at $21.56, an increase of 20% year-over-year. Its adjusted EBITDA came in at $1.26 billion, up 19.5% year-over-year.
The consensus revenue estimate of $7.16 billion for the year ending 2024 represents an 2% increase year-over-year. The stock has gained 3.2% over the past nine months to close its last trading session at $62.15.
BCC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system. BCC is also rated an A for Value and a B for Momentum and Quality. Within the same industry, it is ranked #2.
Click here to see additional POWR Ratings for Growth, Stability and Sentiment for BCC.
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UFPI shares were trading at $78.61 per share on Tuesday afternoon, up $1.10 (+1.42%). Year-to-date, UFPI has declined -0.52%, versus a 7.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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