WFG: Mill Closures And Buybacks Will Drive Stronger Margins Ahead

Analysts have modestly reduced their price target on West Fraser Timber, trimming fair value expectations by about $9 per share as slightly softer revenue growth and valuation assumptions more than offset a small improvement in projected profit margins.

Analyst Commentary

Analyst sentiment on West Fraser Timber remains mixed, with recent target cuts driven more by valuation discipline than a sharp change in the fundamental outlook. Commentary points to a business that is executing reasonably well, but now faces a higher bar to justify previous upside assumptions.

Bullish Takeaways

• Bullish analysts highlight that incremental margin improvement supports the case for West Fraser to defend, and potentially expand, returns on capital as markets normalize from recent volatility.
• Stronger profitability forecasts, even if modest, are seen as a sign that cost controls and operational efficiency initiatives are gaining traction, underpinning earnings resilience through the cycle.
• Some see the lower price target as primarily a valuation reset rather than a downgrade in the company’s long term growth potential, suggesting upside could re emerge if the stock pulls back or fundamentals outpace current assumptions.
• Improved visibility into cash generation and balance sheet strength is viewed as a foundation for continued shareholder returns via buybacks and dividends over the medium term.

Bearish Takeaways

• Bearish analysts argue that recent share price strength already reflects much of the anticipated margin recovery, leaving limited room for multiple expansion without a step change in growth.
• There is concern that softer revenue growth expectations, particularly if lumber and panel prices remain subdued, could cap earnings momentum and constrain upside to current valuation.
• Some caution that macro uncertainty and housing demand headwinds may pressure volume and pricing, making it harder for West Fraser to consistently deliver above consensus forecasts.
• Execution risk around capital allocation, including the timing and scale of future growth investments, is flagged as a potential source of volatility in both earnings and valuation multiples.

What's in the News

• Plans to permanently close lumber mills in Augusta, Georgia and 100 Mile House, British Columbia by the end of 2025, citing timber supply constraints, soft lumber markets, and higher duties and tariffs. The closures affect about 295 employees and remove roughly 300 million board feet of capacity (Company announcement).
• Indefinite 2024 curtailments at Huttig, Arkansas and Lake Butler, Florida lumber mills have been made permanent. The facilities will be dismantled and the sites sold, as West Fraser streamlines its footprint in a challenging softwood lumber demand environment (Company announcement).
• The replacement mill in Henderson, Texas has commenced start up, while the adjacent legacy mill has ceased operations, reshaping the company’s Southern U.S. production profile (Company announcement).
• West Fraser expects to record restructuring and impairment charges in the fourth quarter of 2025 tied to mill closures, curtailments, and related strategic actions (Company announcement).
• Ongoing share repurchases under the February 27, 2025 buyback program, with 1,295,215 shares, or about 1.63% of outstanding shares, repurchased for $97.01 million as of late September 2025 (Company filing).

Valuation Changes

• Fair Value: Reduced from CA$113.12 to CA$103.73, a decline of roughly CA$9.40 per share, reflecting a more conservative valuation framework.
• Discount Rate: Lowered slightly from 7.45% to about 7.40%, signaling a marginally reduced perceived risk profile or cost of capital.
• Revenue Growth: Trimmed from 5.32% to approximately 5.13% annually, indicating a modestly softer long term top line outlook.
• Net Profit Margin: Nudged higher from 9.06% to about 9.11%, suggesting incremental confidence in future earnings efficiency despite slower growth.
• Future P/E: Brought down from 12.42x to roughly 11.46x, marking a moderate compression in the valuation multiple applied to forward earnings.