In a Nov. 10, 2017, research note, Russell Stanley, an analyst with Echelon Wealth Partners, described Hardwoods Distribution Inc. (HWD:TSX) as "an undervalued/underfollowed play on continued growth in residential and commercial construction" in primarily the United States, but also Canada.
Based in British Columbia, this company distributes high-grade hardwood lumber, sheet goods, architectural millwork and nonstructural architectural-grade building products. From its 62 distribution centers, it serves more than 37,000 customers.
Stanley indicated that Echelon expects Hardwoods to report a Q3/17 revenue of $269 million ($269M) and an EBITDA of $15.7M, which "are essentially in line with consensus estimates" for the same, at $267M and $15.8M, respectively. These expected Q3/17 revenue figures are slightly lower than Hardwoods' Q2/17 revenue of $275M despite the company's third quarters tending to be its strongest.
Recent reports about new home demand and sales bode well for Hardwoods Distributors, Stanley wrote. For one, D.R. Horton, "the largest homebuilder in the U.S. by sales volumes," reported, for its fiscal year ending Sept. 30, 2017, a 14% year-over-year increase in closed home sales transactions. For its new fiscal year, management guided to another 10–15% boost in closings. Another homebuilder, PulteGroup, anticipates its new home sales closings in 2017 to exceed those in 2016 by 5–10%.
Also, the residential market continues to recover and has a way to go before it reaches historical levels, Stanley indicated. "Housing starts are still shy of the long-term annual average of 1.4M and are well below the 1.5–1.6M thought necessary to support population growth and demographic trends."
Potential catalysts for Hardwoods Distributors include the impending release of its Q3/17 financial results along with "further mergers & acquisitions activity and dividend increases," said Stanley.
On Hardwoods Distribution, Echelon has a Buy rating and a 12-month target price of CA$25. Hardwoods' stock is currently trading at around CA$19.92 per share.
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