Investing In EWP Expansion And Modernization Will Improve Future Operations

Key Takeaways

• Significant investments in EWP and facility modernization could boost future revenues and operational efficiency.
  
• Strategic acquisitions and expanded distribution suggest potential growth in revenue and market reach.
  
• Challenges in housing market demand and pricing pressures, coupled with facility issues and economic uncertainties, could threaten Boise Cascade's future revenue and profitability.

Catalysts

Engages in manufacture and sale of engineered wood products (EWP) and plywood, and wholesale distribution of building materials in the United States and Canada.

• Boise Cascade is investing significantly in capital expenditures for 2025, focusing on expanding EWP production capabilities and modernizing facilities, which could increase future revenues and improve operational efficiency.
  
• The company is making strategic acquisitions and expanding its greenfield distribution centers, indicating potential growth in distribution reach and revenue.
  
• The resilience and growth in the general line product sales and BMD’s improved gross margin percentage suggest potential for maintaining or improving net margins despite a competitive environment.
  
• Boise Cascade's strategic focus on organic growth initiatives and a balanced capital allocation approach, including ongoing investments in their asset base, could enhance long-term earnings and shareholder value.
  
• The company’s success in gaining market share in LVL and the strength of its tightly-aligned manufacturing and distribution system could positively impact future revenue growth in the wood products segment.

Boise Cascade Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boise Cascade's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.6% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $382.4 million (and earnings per share of $10.44) by about March 2028, up from $376.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from 10.2x today. This future PE is lower than the current PE for the US Trade Distributors industry at 18.3x.
• Analysts expect the number of shares outstanding to decline by 3.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.

Boise Cascade Future Earnings Per Share Growth

Risks

• The decrease in total U.S. housing starts and single-family housing starts, along with a decline in consolidated fourth-quarter sales and net income, highlights challenges in the housing market that could impact future revenue and earnings.
  
• The reduction in Wood Products segment EBITDA, primarily due to lower EWP and plywood sales prices, suggests pricing pressures which could negatively affect profit margins.
  
• Competition for market share in the current demand environment has led to sequential price declines for LVL and I-joists, indicating potential risks to future pricing power and revenue.
  
• The temporary closure and reduced capacity at the Oakdale facility will lead to negative cost impacts, potentially affecting short-term revenue and profitability due to decreased production volumes.
  
• Uncertainties related to potential tariff implementations and macroeconomic conditions could create additional affordability challenges, potentially leading to demand destruction and impacting revenue forecasts.

Valuation

• The analysts have a consensus price target of $126.333 for Boise Cascade 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 $140.0, and the most bearish reporting a price target of just $115.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.3 billion, earnings will come to $382.4 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $101.62, the analyst price target of $126.33 is 19.6% 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.