Canfor Earnings: Global Lumber Markets See Few Signs of Relief, but Shares Remain Cheap

No-moat-rated Canfor reported fourth-quarter results that were largely in line with our expectations. The company capped off a challenging year as weak housing markets and stagnant lumber prices weighed heavily on financial results. In the fourth quarter, net sales fell almost 7% and Canfor reported a CAD 191 million operating loss; this marks the fifth consecutive quarter the company has reported an operating loss. Canfor reported a full-year 2023 operating loss of CAD 532 million after posting over CAD 1 billion in operating profit in 2021 and 2022. The pandemic-era lumber boom has gone bust, and dimensional lumber producers like Canfor are experiencing the brunt of the pain. Canfor has taken steps to mitigate the damage, including taking significant production curtailments to balance supply with demand and removing higher-cost capacity. While this will benefit the company over time, we expect some recovery in lumber markets through the year and into 2025. This provides some optimism that there is light at the end of the tunnel for Canfor. We've decreased our fair value estimate to CAD 25 per share from CAD 27 due to our expectation of softer lumber markets through 2024 than we had previously anticipated.