BUSINESS
UFP Industries, Inc., through its subsidiaries, designs, manufactures, and markets wood and wood-alternative products in North America, Europe, Asia, and Australia. It operates through Retail, Industrial, and Construction segments. The Retail segment offers preserved and unpreserved dimensional lumber; and outdoor living products, including wood and wood composite decking and related accessories, decorative lawn, garden, craft, and hobby products. This segment serves national home center retailers, and retail-oriented regional and contractor-oriented lumberyards under the ProWood, ProWood FR, Deckorators, UFP-Edge, Outdoor Essentials, Dimensions, and Handprint trademarks.
INVESTMENT RATING
With future capital returns forecasted to be above the cost of capital, UFPI is expected to continue to be a Value Builder.
UFP Industries has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. UFP Industries has a slightly positive Power Rating of 67 and a slightly positive Appreciation Score of 69, triggering the Positive Value Trend Rating.
UFP Industries’ stock is selling well below targeted value. The current stock price of $116.93 compares to targeted value 12 months forward of $216.
This moderately high appreciation potential results in an appreciation score of 69 (only 31% of the universe has greater appreciation potential.)
UFP Industries has a Power Rating of 67. (This slightly positive Power Rating indicates that UFPI has a better chance of achieving attractive investment performance over the near to intermediate term than all but 33% of companies in the universe.)
Contributing to this slightly positive Power Rating: recent price action has been favorable. Offsetting factors are earnings estimate behavior for UFPI has been slightly negative recently; and the Sawmills, Planing Mills, General comparison group is currently in an unfavorable position.
INVESTMENT PROFILE
UFPI’s financial strength is exceptional. Financial strength rating is 96.
Relative to the S&P 500 Composite, UFP Industries Inc has neutral Growth/Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that UFPI is lower risk. High stock price volatility is a relative weakness for UFPI. UFPI’s valuation is moderate: moderate dividend yield, moderate P/E ratio, and low price/book ratio. UFPI has unusually low market capitalization.
CURRENT SIGNALS
UFP Industries’ current operations are eroding. Return on equity is falling, reflecting: and falling asset utilization.
UFP Industries’ current technical position is very strong. The stock price is in a 8.6 month up move. The stock has appreciated 65.7% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
The stock is currently rated B.
UFP Industries Inc (NASDAQ: UFPI) stock increased 1.9% on 4/11/24. The shares closed at $116.93. However, trading volume in this advance was below average at 71% of normal. The stock has been strong relative to the market over the last nine months but has declined -3.8% during the last week.
CASH FLOW
In 2023, UFP Industries generated a very significant increase in cash of +$561.4 million (+94%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$784.2 million. Non-operating sources contributed +$31.6 million (+4% of EBITDA). Cash taxes consumed -$162.8 million (-21% of EBITDA). Withdrawal of investment from the business totaled +$4.5 million (+1% of EBITDA). On a net basis, debt investors pulled out -$17.6 million (-2% of EBITDA) while equity investors withdrew -$78.5 million (-10% of EBITDA).
UFP Industries’ Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Ufp Industries Peer Group as well. In most years, UFP Industries was in the third quartile and second quartile. Currently, UFP Industries is at the upper quartile at +4% of EBITDA (+$31.6 million).
UFP Industries’ Cash Taxes, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Ufp Industries Peer Group. In most years, UFP Industries was in the third quartile and second quartile. Currently, UFP Industries is at median at -21% of EBITDA (-$162.8 million).
UFP Industries’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ufp Industries Peer Group. (Since 2021 Business Re-investment, %EBITDA has accelerated very sharply.) In most years, UFP Industries was in the second quartile and top quartile. Currently, UFP Industries is at the upper quartile at +1% of EBITDA (+$4.5 million).
UFP Industries’ Debt Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Ufp Industries Peer Group. In most years, UFP Industries was in the second quartile and top quartile. Currently, UFP Industries is upper quartile at -2% of EBITDA (-$17.6 million).
UFP Industries’ Equity Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Ufp Industries Peer Group as well. (Since 2021 Equity Investors, %EBITDA has experienced a sharp decline.) In most years, UFP Industries was in the top quartile and second quartile. Currently, UFP Industries is above median at -10% of EBITDA (-$78.5 million).
UFP Industries’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Ufp Industries Peer Group. (Since 2021 Change in Cash, %EBITDA has accelerated very sharply.) In most years, UFP Industries was in the top quartile and third quartile. Currently, UFP Industries is upper quartile at +72% of EBITDA (+$561.4 million).
UFP Industries’ Cash, %Revenue has exhibited a very small overall uptrend over the period. This improvement was accompanied by stability for the Ufp Industries Peer Group. (Since 2021 Cash, %Revenue has accelerated.) In most years, UFP Industries was in the top quartile and lower quartile. Currently, UFP Industries is upper quartile at +16%.
PROFITABILITY
UFP Industries’ return on equity has improved very significantly since 2014. The current level of 17.1% is 2.04X the low for the period and is -36.7% from the high.
This very significant improvement was due to very strong positive trend in pretax operating return and small positive trend in non-operating factors.
The productivity of UFP Industries’ assets declined over the full period 2014-2023: asset turnover has suffered a strong overall downtrend that accelerated very sharply after the 2021 level.
UFP Industries’ pretax margin enjoyed a very strong overall uptrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
UFP Industries’ return on equity is above median (17.1%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (16.7%) reflecting asset turnover that is at median (1.80X) and pretax margin at the upper quartile (9.3%).
Tax “keep” rate (income tax management) is at the upper quartile (76.6%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.34X).
GROWTH RATES
Overall, UFP Industries’ growth rate has slowed considerably in recent years.
UFP Industries’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 12.9% per year. (More recently it has been -7.9%.)
Total asset growth has been 16.5% per year.
Annual E.P.S. growth has been 27.7% per year.
Equity growth has been 17.4% per year.
UFP Industries’ consensus growth rate forecast (average of Wall Street analysts) is 16.0% — below the average of the historical growth measures.
Relative to the Ufp Industries Peer Group, UFP Industries’ historical growth measures are consistently top quartile. E.P.S. growth (27.7%) has been upper quartile. Total asset growth (16.5%) has been upper quartile. Equity growth (17.4%) has been upper quartile. Revenue growth (12.9%) has been at the upper quartile.
Consistent with this pattern, consensus growth forecast (16.0%) is also at the upper quartile.
PRICE HISTORY
Over the full time period, UFP Industries’ stock price performance has been variable and exceptional. Between June, 2013 and April, 2024, UFP Industries’ stock price rose +779%; relative to the market, this was a +171% gain. Significant price moves during the period: 1) March, 2020 – April, 2021: +126%; and 2) September, 2014 – August, 2016: +156%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 35.6% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of 35.6% is above median relative to UFP Industries Inc Peer Group.
Current 5-year total return performance of 31.4% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 31.4% relative to S&P 500 Composite, UFP Industries’ total return performance is upper quartile relative to UFP Industries Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, UFPI’s overall valuation is quite low. The highest factor, the ratio of enterprise value/assets, is slightly above median. Price/equity ratio is below median. Price/earnings ratio is lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to UFP Industries Peer Group, UFPI’s overall valuation is high. The highest factor, the ratio of enterprise value/assets, is upper quartile. Ratio of enterprise value/revenue is upper quartile. Price/equity ratio is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is below median. The lowest factor, the price/earnings ratio, is below median.
UFP Industries has a very large value gap compared to the median valuation. For UFPI to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 1.05X to 0.85X. If UFPI’s ratio of enterprise value/revenue were to fall to 0.85X, its stock price would be lower by $-24 to $93.
For UFPI to fall to lower quartile valuation relative to the UFP Industries Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.05X to 0.60X. If UFPI’s ratio of enterprise value/revenue were to fall to 0.60X, its stock price would decline by $-53 from the current level of $117.
VALUE TARGETS
With future capital returns forecasted to be above the cost of capital, UFPI is expected to continue to be a Value Builder.
UFP Industries’ current Price Target of $232 represents a +98% change from the current price of $116.93.
This moderately high appreciation potential results in an appreciation score of 69 (only 31% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 69, the moderately high Power Rating of 67 contributes to an Value Trend Rating of B.
UFP Industries’ current Price Target is $232 (+10% from the 2023 Target of $211 and +98% from the 04/11/24 price of $116.93). This slight rise in the Target is the result of a +28% increase in the equity base and a -14% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 12.9% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, steady increase between 2015 and 2023. The current forecast is well below the 2022 peak of 23%.
PTR’s growth forecast is 19.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2015 and 2023. The current forecast is significantly above the 2015 low of 5%.
PTR’s cost of equity forecast is 8.5% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2015 and 2023. The current forecast is well below the 2022 peak of 14.5%.
At UFP Industries’ current price of $116.93, investors are placing a positive value of $45 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 25.0% per year, and a return on equity of 16.8% versus a cost of equity of 11.0%.
PTR’s 2025 Price Target of $232 is based on these forecasts and reflects an estimated value of existing assets of $107 and a value of future investments of $125.
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