Diversified Production In North America Will Strengthen Lumber Demand

Key Takeaways

• Strategic asset diversification, operational investments, and financial flexibility strengthen Interfor's resilience, support margin stability, and enhance capacity to pursue growth across market cycles.
  
• Rising demand for sustainable wood products and stable housing fundamentals position Interfor to capture increased market share and capitalize on long-term lumber demand trends.
  
• Ongoing trade risks, market oversupply, housing demand weakness, import competition, and regional exposure threaten revenue stability, margins, and long-term profitability.

Catalysts

Produces and sells wood products in Canada, the United States, Japan, China, Taiwan, and internationally.

• Strategic diversification of production assets across the U.S. South, Pacific Northwest, and multiple Canadian regions allows Interfor to benefit from differing regional cost advantages and reduce exposure to localized market or regulatory shocks, supporting future revenue growth and margin stability.
  
• Ongoing investments in operational efficiency initiatives-including targeted mill upgrades, automation, and product mix optimization-are tracking positively against internal KPIs, positioning the company for improved EBITDA margins and stronger long-term cash flow.
  
• The growing adoption of sustainable, wood-based construction materials-driven by increasing environmental awareness, supportive policies, and customer preferences (e.g., clear preference for SPF in new residential and prefab applications)-expands Interfor's addressable market and may support future pricing power and volume growth.
  
• Tight North American housing supply levels and resilient underlying housing demand, despite near-term affordability headwinds, offer a structurally supportive backdrop for long-term lumber demand, benefitting Interfor's shipment volumes and revenue potential as the market normalizes.
  
• Enhanced financial flexibility from the renewed credit facility and significant trapped value in duty deposits provide Interfor with the balance sheet strength to pursue growth opportunities, invest through market cycles, and protect against earnings volatility, improving the company's risk/reward profile.

Interfor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Interfor's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.1% today to 0.4% in 3 years time.
• Analysts expect earnings to reach CA$14.7 million (and earnings per share of CA$1.04) by about October 2028, up from CA$-179.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 86.8x on those 2028 earnings, up from -3.6x today. This future PE is greater than the current PE for the CA Forestry industry at 21.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.47%, as per the Simply Wall St company report.

Interfor Future Earnings Per Share Growth

Risks

• Prolonged uncertainty and heightened risks from U.S. trade policy and tariffs (including the risk of significantly higher duties on shipments from Canada to the U.S.) may continue to create volatility in demand, pricing, and customer ordering behavior, directly impacting Interfor's revenue stability and net margins.
  
• Persistent oversupply in the lumber market despite industry-wide production curtailments has constrained earnings, and if this structural imbalance continues, it could lead to sustained pressure on realized prices and reduced profitability.
  
• Demand weakness related to housing affordability challenges, economic uncertainty, and declines in new home construction could undermine the long-term secular trend of housing-driven lumber demand, pressuring shipment volumes and overall revenue growth.
  
• Intensifying competition from European lumber imports and the potential for increased imports during periods of North American trade uncertainty could erode Interfor's market share, especially for SPF products, impacting revenue and compressing margins.
  
• The company's exposure to North American housing and construction cycles, and geographic concentration, makes it vulnerable to regional regulatory, environmental, and trade disruptions, raising compliance costs and compressing net margins if adverse conditions persist or worsen.

Valuation

• The analysts have a consensus price target of CA$15.0 for Interfor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$17.0, and the most bearish reporting a price target of just CA$12.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$3.5 billion, earnings will come to CA$14.7 million, and it would be trading on a PE ratio of 86.8x, assuming you use a discount rate of 10.5%.
  
• Given the current share price of CA$9.98, the analyst price target of CA$15.0 is 33.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.