Last Update 09 Jan 26

SJ: Utility Modernization And Acquisitions Will Test Fairly Valued Shares

Narrative update on Stella-Jones

The analyst price target for Stella-Jones has shifted modestly around the C$88 to C$100 range, as analysts point to a potential re rating opportunity tied to the company’s role in utility infrastructure modernization and an expected acquisitive phase, while others have trimmed targets and moved to more neutral stances.

Analyst Commentary

Recent research on Stella-Jones shows a mix of optimism around its role in utility infrastructure and more cautious views that focus on valuation and near term execution risk. Taken together, the commentary helps frame how different analysts are thinking about upside potential versus what may already be reflected in the share price.

Bullish Takeaways

Bullish analysts highlight a potential re rating opportunity, with Stella-Jones described as moving from a mature wood products consolidator into a more diversified platform tied to utility infrastructure modernization. They view this as supportive for a higher valuation multiple if execution goes to plan.
One bullish view is built around an expected acquisitive phase, with the idea that disciplined acquisitions could expand the company’s exposure to transmission and distribution related spending and, in turn, support longer term growth in earnings power.
The C$100 price target on the more optimistic side of the range reflects confidence that the current business mix and future capital deployment can justify a premium versus where the stock is currently trading, assuming management delivers on its stated priorities.
The upward move in one target to C$88 from C$81, even alongside a more neutral rating, signals that some analysts see room for valuation to adjust higher as the company leans further into its utility focused offerings.

Bearish Takeaways

Bearish analysts, or those taking a more conservative view, have shifted to Neutral ratings. This suggests they see the current share price as more fully reflecting near term expectations, which limits the immediate upside they are willing to underwrite.
Target cuts around the C$89 to C$90 level point to caution that the risk and reward trade off may be more balanced, especially if the timing or scale of acquisitions and utility related spending does not match prior assumptions.
The presence of Neutral and Sector Perform ratings, even with price targets that sit within the higher end of the recent range, indicates some concern that investors may already be paying for much of the anticipated growth, leaving less margin for execution missteps.
The move from an Outperformer style stance to Neutral by one firm also underscores the view that, while the long term story tied to infrastructure is appealing, there is uncertainty about how quickly those themes translate into financial results that would support further re rating.

What's in the News

Management reiterated that acquisitions remain a key growth lever, highlighting a disciplined framework focused on expanding the existing infrastructure portfolio and using established customer relationships and distribution to support future opportunities (Key Developments).
Stella-Jones outlined interest in acquisitions and investments that add adjacent products and services in areas such as railway ties, with management indicating they continue to review options to increase market share through targeted deals (Key Developments).
The Board of Directors authorized a new share buyback plan on November 4, 2025, adding another capital return tool to the company’s toolkit (Key Developments).
Under its normal course issuer bid, Stella-Jones announced it may repurchase up to 1,500,000 shares, or 2.73% of issued share capital, with any repurchased shares to be cancelled and the authorization in place until November 13, 2026 (Key Developments).
Between July 1, 2025 and September 30, 2025, the company repurchased 253,580 shares for C$20 million, bringing total buybacks under the prior program announced November 6, 2024 to 742,634 shares for C$55 million (Key Developments).

Valuation Changes

Fair Value: Kept steady at CA$95.0, with no change between the prior and updated estimate.
Discount Rate: Adjusted marginally from 8.01% to 7.97%, a very small move that slightly lowers the required return in the model.
Revenue Growth: Held effectively unchanged at 4.78%, indicating the updated work uses the same growth assumption.
Net Profit Margin: Maintained at roughly 9.06%, with only a minimal rounding difference in the revised input.
Future P/E: Left essentially flat at about 17.1x, reflecting a stable view on the valuation multiple applied to forward earnings.

Demand for core wood products faces long-term risks from market shifts to alternative materials and delayed infrastructure spending in key regions.
Growing customer concentration and competitive pressures threaten revenue stability, while regulatory and input cost challenges may constrain future profitability.
Diverse growth drivers, acquisitions, and infrastructure demand position Stella-Jones for resilient revenue, stable margins, and sustained earnings and shareholder returns amid long-term industry tailwinds.

Catalysts

About Stella-Jones

Manufactures and sells industrial pressure-treated wood products in Canada and the United States.What are the underlying business or industry changes driving this perspective?

Market optimism may have outpaced fundamentals due to slower near-term demand and delayed utility pole replacement in Canada and the US, as several utilities defer infrastructure spending; if this transition toward mid-single-digit growth is slower than anticipated, revenue and earnings forecasts may be too high.
Stella-Jones has significant exposure to a structural shift toward steel and composite poles as utilities invest in grid modernization and undergrounding, which could erode long-term demand for its core wood utility pole products and pressure revenue and margin expectations in years ahead.
Increasing customer concentration risk has become evident, with notable Class 1 railway tie volume losses and an expectation that further consolidation or in-sourcing by large customers could add volatility and compress both revenues and margins.
Recent investment in higher-value, steel transmission structures (Locweld acquisition) signals an attempt to enter adjacent markets that are more competitive and capital intensive, potentially increasing execution and integration risk and jeopardizing near-term margin stability.
Anticipated tightening of environmental and chemical regulations, combined with rising input cost volatility (timber, chemicals), could increase compliance costs and restrict profit potential, leading to a long-term drag on net margins and earnings growth.

Stella-Jones Earnings and Revenue Growth

Stella-Jones Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Stella-Jones's revenue will grow by 3.7% annually over the next 3 years.
Analysts assume that profit margins will shrink from 9.6% today to 8.0% in 3 years time.
Analysts expect earnings to reach CA$308.4 million (and earnings per share of CA$5.94) by about August 2028, down from CA$331.0 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 18.3x on those 2028 earnings, up from 13.2x today. This future PE is greater than the current PE for the CA Forestry industry at 17.9x.
Analysts expect the number of shares outstanding to decline by 1.97% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Stella-Jones Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The North American infrastructure renewal cycle and grid modernization efforts are expected to drive sustained long-term demand for utility poles and transmission structures, which are core offerings for Stella-Jones, supporting reliable revenue growth and resilient order books.
Aging infrastructure in both the U.S. and Canada means persistent underlying replacement needs for utility poles and railway ties, and management repeatedly affirmed a visible, improving volume trend well into 2026, indicating stable or growing sales regardless of short-term softness.
The Locweld acquisition significantly expands Stella-Jones into the steel transmission structure market, opening up a new CA$5 billion market and diversifying the business, which is already seeing strong order commitments from large utilities, supporting long-term revenue and margin expansion.
Stella-Jones maintains a strong balance sheet with low leverage (net debt/EBITDA of 2.4x), high liquidity, and ample capacity for further strategic, accretive acquisitions in adjacent industries, positioning the company for both organic and acquisitive growth, which will underpin EPS growth and sustain elevated margins.
Management's focus on operational efficiency, robust customer relationships (including a predominance of long-term contracts), and the ability to quickly respond to operational disruptions (such as the Brierfield fire), along with consistent EBITDA margins above 17% and a history of returning significant capital to shareholders, all provide a strong base for maintaining or increasing earnings and shareholder returns in the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$85.25 for Stella-Jones 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$92.0, and the most bearish reporting a price target of just CA$75.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$3.8 billion, earnings will come to CA$308.4 million, and it would be trading on a PE ratio of 18.3x, assuming you use a discount rate of 8.4%.
Given the current share price of CA$79.05, the analyst price target of CA$85.25 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

North American Grid Modernization Will Hurt Wood Utility Pole Demand