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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Disclosures from Echelon Wealth Partners, Hardwoods Distribution Inc., Nov. 10, 2017
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
ANALYST CERTIFICATION: Company: Hardwood Distribution Inc. | HWD:TSX
I, Russell Stanley, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Is this an issuer related or industry related publication? Issuer.
Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No
Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer? No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No
Has the Analyst had an onsite visit with the Issuer within the last 12 months? No
Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No
Has the Analyst received any compensation from the subject company in the past 12 months? No
Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No