It’s been a pretty great week for West Fraser Timber Co. Ltd. (TSE:WFT) shareholders, with its shares surging 16% to CA$64.50 in the week since its latest full-year results. The statutory results were not great – while revenues of CA$4.9b were in line with expectations,West Fraser Timber lost CA$2.18 a share in the process. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. With this in mind, we’ve gathered the latest statutory forecasts to see what analysts are expecting for next year.
After the latest results, the five analysts covering West Fraser Timber are now predicting revenues of CA$5.24b in 2020. If met, this would reflect a satisfactory 7.5% improvement in sales compared to the last 12 months. West Fraser Timber is also expected to turn profitable, with statutory earnings of CA$3.49 per share. In the lead-up to this report, analysts had been modelling revenues of CA$5.24b and earnings per share (EPS) of CA$2.83 in 2020. There was no real change to the revenue estimates, but analysts do seem more bullish on earnings, given the very substantial lift in earnings per share expectations following these results.
There’s been no major changes to the consensus price target of CA$67.71, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock’s valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic West Fraser Timber analyst has a price target of CA$80.00 per share, while the most pessimistic values it at CA$41.00. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
In addition, we can look to West Fraser Timber’s past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. We can infer from the latest estimates that analysts are expecting a continuation of West Fraser Timber’s historical trends, as next year’s forecast 7.5% revenue growth is roughly in line with 8.3% annual revenue growth over the past five years. Compare this with the wider market, which analyst estimates (in aggregate) suggest will see revenues grow 5.6% next year. So although West Fraser Timber is expected to maintain its revenue growth rate, it’s definitely expected to grow faster than the wider market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards West Fraser Timber following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – and our data does suggest that West Fraser Timber’s revenues are expected to grow faster than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. We have forecasts for West Fraser Timber going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether West Fraser Timber’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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