Opinions
Bruce Murray
Boise Cascade Company
BCC-N
COMMENT
Aug 24, 2020
$47.510
Stock price when the opinion was issued
Forestry
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TOP PICK
Stockchase Research Editor: Michael O'Reilly BCC is a lumber manufacturer who focuses on engineered wood products, which are increasingly popular for their durability and longevity. These traits were magnified during the pandemic as consumers focused on better quality home improvement projects. It trades at only 8x earnings, compared to peers at 22x. It has a PEG ratio of only 0.4 and trades at under 3x book value. It pays a small dividend backed by a payout ratio less than 10% of cash flow. We would buy this with a stop loss at $45, looking to achieve $71 -- upside potential over 20%. Yield 0.67% (Analysts’ price target is $70.50)
Forestry
TOP PICK
Stockchase Research Editor: Michael O'Reilly We reiterate our recommendation of BCC as a TOP PICK. The lumber manufacturer focuses on engineered wood products, which are increasingly popular for their durability and longevity. These traits continue to be during the pandemic as consumers focused on better quality home improvement projects. It trades at 8x earnings compared to peers at 18x. It pays a small dividend, backed by a payout ratio under 10% of cash flow. We would buy this with a stop loss at $45, looking to achieve $64 -- upside potential over 20%. Yield 0.74% (Analysts’ price target is $63.80)
Forestry
DON'T BUY
They generated $8 billion in revenues last year, selling building products like wood and plywood. Has performed well since debuting in 2013, though it didn't take off until Covid in 2020 which triggered housing demand. Up 35% in 2020 and 61% in 2021. YTD, it's up 3%, though it peaked in early June. It came down hard after that. It's a housing play which worries him. Homebuilders say that we're in a housig recessiom now, making BCC stock a battleground. He doesn't see things improving. However, BCC It trades at less than 4x this year's earnings estimate. Though BCC put up good numbers two weeks, shares still got hammered because of recessionary fears ahead. BCC itself said that homebuilding will slow in the second half of this year. Shares have rebounded and the company has a terrific balance sheet. But the housing background won't improve.
Forestry
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Housing demand has jumped in the US with the trend to move to the suburbs, which may last. This trend has benefited lumber. But the U.S. will always retaliate against Canada when lumber booms, though today the WTO shot down the latest tariff. CAS would benefit tariffs. Lumber demand will stay strong, but capacity will catch up as under-used sawmills will return to operation and this stock price won't stay at this level for that long.