Western Forest has slight bump in revenues but almost 60% increase in earnings (e.p.s.)
Western Forest Products (WEF) could have reported on April 5 but instead showed it's results on May5.And WEF tells shareholders that it received average lumber prices of $1356/1000 board feet during the quarter but revenues were up by only1% above Q42020.While earnings (e.p.s.) went from $.09 in Q4 2020 per share to $.14 per share in this quarter for a 55% increase.This blog forecasted that e.p.s. would likely be $.11-$.12 per share for the quarter.The recovery in earnings has helped the price to move up from $1.00 to $2.40 for a 140% rise over the last six months.In conclusion,Western Forest Products is highly leveraged to the lumber price.And the forecast is for even higher lumber prices for the next quarter.
Quarterly Finances
The volume of lumber sold was 4% above that of Q4 2020.But sales of logs and by-products were down.Consequently revenues in Q1 were $322 million compared to $99 million in Q1 2020 but $319 million in Q4 2020.While adjusted EBITDA for the quarter came in at $69 million.Lumber prices have continued to rise since the end of Q1.And now are around $1650/1000 board feet or 16% above the average price for Q1.Analysts expect robust prices for all of 2021. As there is still a strong repair and renovation market and limited supply.So it is hard to forecast the lumber price for the end of Q2.But this blog is expecting even higher prices and revenues for Q2.
Analysts were low in estimated revenues and earnings (e.p.s) for Q4 2020.And they were also low in estimates for Q1 2021.Most Q1 forecasts were from $.10 to $.12 per share.While this blog forecasted $.11-$.12 per share.But WEF announced in it's quarterly report earnings of $.14 per share beating all estimates.In addition, it is likely that the average quarterly price will be 15-20% above the average price for Q1.So Q2 e.p.s. could hit $.17-$.20
per share.
Future Stock Price
As was noted above WEF only made a slight increase in revenues in this quarter but earnings exceeded almost all estimates.And in both Q2 and Q3 the lumber price is expected to be above the average price reached in Q1.So shareholders could expect e.p.s. to easily reach $.17-$.20 per share in Q2 and Q3.This could put annual e.p.s. in the$.65-$.75 range.Although the trend is for consumer driven home improvements to continue Western Forest must guard ,especially in 2022, for a slight or even moderate downturn in the lumber price.To that end,WEF management has and will continue to pay off debt.But with the buildup of cash in the next 3 quarters it should look to an acquisition of a mill or even 2 in nearby Washington state or further south in Georgia or South Carolina.Western Forest needs to diversify it's operations just as the larger Canadian lumber firms have done.
WEF should have little trouble hitting the price targets set by the Canadian banks.And if lumber prices hit and stay above today's price in Q4 look for Western Forest to head for $4 a share.And an acquisition or two of non-Canadian sawmills will help to keep it there.
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