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Here's Why Universal Forest (UFPI) Stock is a Solid Pick Now

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We issued an updated research report on Universal Forest Products Inc. (UFPI - Free Report) on Dec 18. We believe that a diversified business structure, initiatives to return higher value to shareholders and inorganic activities make this stock an attractive choice for investors seeking exposure in the building products space.

It currently sports a Zacks Rank #1 (Strong Buy). Its investment appeal is further accentuated by a favorable VGM Score of B.

Universal Forest’s earnings are projected to grow 10% in the next three to five years. Currently, the Zacks Consensus Estimate is pegged at $1.87 for 2017 and $2.19 for 2018, representing year-over-year growth of 13.3% and 17.1%, respectively.

Also, market sentiments have been positive for Universal Forest, with the stock yielding 25% return in the last three months. This gain is above 8.7% growth of the industry it belongs to.


Below we discuss why investors should consider buying Universal Forest’s stock.

Business Diversification a Boon: Universal Forest — a leading manufacturer and distributor of wood and wood-alternative products — serves retailers, distributors, builders of single and multifamily homes, and others customers in various end markets including retail building material, construction and industrial end markets. Such diversification prevents the company from losses in the event of loss of business from any particular customer.

Furthermore, international diversity has played a major role in Universal Forest’s profitability over time. It operates through its subsidiaries in North America, Europe, Asia and Australia. Strengthening international presence remains a priority for the company.

Inorganic Initiatives Drive Growth Opportunities: Acquired assets have over time contributed to Universal Forest’s expansion. Notably, acquired assets contributed roughly 15% to year-over-year sales growth in third-quarter 2017.

In May 2017, the company acquired Go Boy Pallets, LLC — engaged in manufacturing and distributing industrial pallets and packaging in Georgia and North Carolina. This buyout has been strengthening the company’s industrial packaging business. Moreover, in March, the company acquired Robbins Manufacturing Company and Quality Hardwood Sales, LLC. These assets have fortified the company’s position in the hardwood products market.

Attractive Shareholders’ Return: Share buybacks and dividend payments are the prime means of returning value to shareholders for Universal Forest. Notably, shares worth $13 million were repurchased while dividend of $9.2 million was distributed in the nine months ended September 2017.

In October, the company announced a 13.3% increase in semi-annual dividend rate while it paid stock dividend by issuing two additional common shares for each common share held by the shareholders in November.

Solid Near-Term Prospects and Long-Term Targets: Universal Forest is poised to gain from strengthening demand in the U.S. construction market. Also, addition of new customers, new product launches and synergistic benefits from acquired assets are other factors favoring the company. In 2017, the company anticipates generating revenues of $365 million from new products.

Over the long term, the company aims to grow sales roughly 4-6% above GDP growth. New product sales are anticipated to constitute at least 10% of total sales while earnings before interest, tax, depreciation and amortization growth will exceed unit sales growth. Also, the company anticipates offering high-quality products to its customers, having started new development and testing facilities.

Other Stocks to Consider

Universal Forest currently carries a market capitalization of $2.3 billion. We believe that the above-mentioned positives clearly justify the stock’s current ranking.

Some other stocks worth considering in the industry are Rayonier Inc. (RYN - Free Report) , Norbord Inc. and Weyerhaeuser Company (WY - Free Report) . While both Rayonier and Norbord sport a Zacks Rank #1, Weyerhaeuser carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rayonier’s earnings estimates for 2017 and 2018 improved in the last 60 days. The company delivered better-than-expected earnings in three of the last four quarters, with an average positive surprise of 96.01%.

Norbord’s earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company delivered a positive earnings surprise of 12.10% in the last quarter.

Weyerhaeuser’s earnings estimates for 2017 and 2018 improved in the last 60 days. Also, it pulled off an average positive earnings surprise of 7.23% for the last four quarters.

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