We wrote about Fraser West Timber Co. Ltd.NYSE:WFG) in July this year, when we declared that momentum would continue in the forestry company after its second quarter results. Although the company T2 lack of earnings caused a temporary plateau in the stock price, West Fraser’s convincing third-quarter earnings beat, announced at the end of October, brought the shares back to the level of over $85, signifying resistance at overheads of between $87 and $89 per share) will most likely be tested in this latest bull move. Therefore, as things stand, WFG remains down approximately 3.85% (when we include dividend distributions) since our last comment in July. However, we reiterate our bullish stance on WFG for the following reasons.
If we plot a long-term graph of WFG, we see that two Buying signals appear to be within reach. The first is the MACD which is very close to giving a long-term buy signal due to the converging nature of the indicator’s trendlines. MACD crossovers are particularly notable on long-term charts due to the dual role of the indicator (momentum and trend) as well as the significant amount of information that is digested during the process. Additionally, if we can combine a MACD crossover with a crossover of the stock’s 10-month moving average above its 40-month counterpart, that would stack the odds in favor of a sustained uptrend in WFG at price. of the next two years.
Intermediate 5-year chart
As we see below, WFG stock has been consolidating for almost 3 years now. Since consolidation (forming a rectangle) began to take shape after the stock’s significant rise from the stock’s 2020 lows, we see this trend playing out as a continuation (bullish) trend over time. A decisive close above the stock’s all-time highs (February 2022 highs of over $99 per share) would confirm this trend. Furthermore, it is the high level of the trend that should interest investors as the forecast value would be for WFG to trade at $120 minimum per share if a breakout is indeed anticipated.
As Chartists, we believe that WFG’s technical data is the synthesis of all known information (whether fundamental or not) about West Fraser Timber at this time. Therefore, while the recent decision to divest several pulp mills and purchase a sawmill may not yet be fully reflected on the company’s balance sheet, the market has already digested the ramifications of how WFG continues its quest to become a leading producer of renewable energy. wooden construction supplier for its customers.
We continue to believe WFG is undervalued, as shown below in its key valuation multiples. Although the company’s earnings and cash flow multiples may not reach the levels investors desire (the GAAP earnings multiple is actually negative on a trailing 12-month basis), we recommend investors focus more on the cheapness of WFG’s assets. As we see below (compared to the industry as a whole as well as WFG’s historical averages), the company’s trailing 12-month accounting multiple is valued at a significant discount to what we’re used to for this title.
|last 12 months
|WFG 5-year average
|Price to book
|Price to profits
Balance sheet strength
During WFG’s most recent quarter, shareholders’ equity exceeded $7.5 million, meaning book value has essentially tripled since the end of fiscal 2020. Suffice it to say, when a stock trades below book value (book value per share is more than $90 per share). stock currently), has negative debt when the cash balance is taken into account and is expected to increase its earnings aggressively, it is stacking the odds in favor of a rise in the stock price over the time. WFG really “made hay” when lumber prices soared in 2021 and 2022 and while this anomaly may not recur for some time, the company’s financial situation has improved without late in recent years. We reiterate our view that as long as WFG can generate enough sales (from its cheap assets) to generate profits and cash flow, then that same cash flow can be used to grow the business further. over time through investment, even when demand for lumber slows. certain periods to come. Therefore, taking into account the above and the company’s strong forward-looking vision growth way, we maintain that WFG remains a “buy” at this time.
In summary, we reiterate our bullish stance on West Fraser Timber due to its bullish technicals, strong growth curve, low valuation as well as its negative debt position. We look for the trend regarding the company’s strong EBITDA growth in T3 will continue through fiscal year 2024. We look forward to continued coverage.