West Fraser Timber Co. Ltd. (TSE:WFT) shareholders will have a reason to smile today, with the analysts making substantial upgrades to next year's forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects. The market seems to be pricing in some improvement in the business too, with the stock up 6.4% over the past week, closing at CA$83.14. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the upgrade, the current consensus from West Fraser Timber's five analysts is for revenues of CA$5.6b in 2021 which - if met - would reflect a satisfactory 6.1% increase on its sales over the past 12 months. Before the latest update, the analysts were foreseeing CA$5.7b of revenue in 2021. Overall it looks like West Fraser Timber is performing in line with analyst expectations, given the analysts have updated their numbers and there's been no real change to next year's forecast following these updates.
There was no particular change to the consensus price target of CA$83.85, with West Fraser Timber's latest outlook seemingly not enough to result in a change of 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. Currently, the most bullish analyst values West Fraser Timber at CA$95.00 per share, while the most bearish prices it at CA$56.00. This shows there is still some 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the West Fraser Timber's past performance and to peers in the same industry. Next year brings more of the same, according to the analysts, with revenue forecast to grow 6.1%, in line with its 5.3% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 1.8% per year. So although West Fraser Timber is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts reconfirmed their revenue estimates for next year, suggesting that the business is performing in line with market expectations. They're also forecasting more rapid revenue growth than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at West Fraser Timber.
Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on West Fraser Timber that suggests the company could be somewhat undervalued. For more information, you can click through to our platform to learn more about our valuation approach.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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West Fraser Timber
West Fraser Timber Co. Ltd., a diversified wood products company, engages in manufacturing, selling, marketing, and distributing lumber, engineered wood products, pulp, newsprint, wood chips, and other residuals and renewable energy.
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