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Universal Forest's (UFPI) Investment Appeal Solid on Buyouts

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We issued an updated research report on Universal Forest Products, Inc. (UFPI - Free Report) on Jun 8.

With approximately $2.4 billion market capitalization, this building products company currently carries a Zacks Rank #2 (Buy). The company’s earnings are projected to grow 5% in the next three to five years.

Let’s delve deeper and discuss why investors should consider adding Universal Forest’s stock to their portfolio.

Financial & Share Price Performance, Earnings Estimate Revision: Universal Forest delivered better-than-expected results in two out of last four quarters. Average earnings surprise was a positive 3.49%. Notably, in the first quarter of 2018, the company pulled off an earnings and sales surprise of 7.1% and 5%, respectively. Also, its earnings surged 32.4% on a year-over-year basis.

Solid financial results have been one of the reasons for the company’s stock-price rally of 15.4% in the past three months. It comfortably outperformed 10.7% increase recorded by the industry and 0.4% decline recorded by the Zacks Construction sector.


 

Also, in the last 60 days, the company’s earnings estimates for both 2018 and 2019 have been positively revised. The stock’s Zacks Consensus Estimate is pegged at $2.57 for 2018 and $2.94 for 2019, representing growth of 9.4% and 7.3% from their 60-day-ago respective tallies. On a year-over-year basis, estimates for 2018 represent growth of 39.7% while estimates for 2019 reflect 14.4% increase.

Inorganic Initiatives a Boon: Over time, Universal Forest has undertaken a number of strategic decisions, including acquisition and divestitures that have helped in augmenting the company’s market reach and profitability while strengthening its product portfolio.

The company undertook several acquisitions between 2016 and 2018, year to date. It acquired idX Holdings in 2016 while added certain assets of Quality Hardwood Sales, Robbins Manufacturing Company and Go Boy Pallets, LLC to its portfolio in 2017. This year, the company acquired Spinner Wood Products and Great Northern Lumber in January as well as Expert Packaging and Fontana Wood Products in April. These four buyouts in 2018 are anticipated to generate revenues of $50 million annually.

Recently, Universal Forest completed the acquisition of North American Container Corporation. This buyout will fortify the company’s product portfolio and customer base by bringing corrugated, steel and hardwood packaging solutions under one roof as well as enable it to penetrate into growth markets and improve its technological expertise.

In addition to the above-mentioned acquisitions, the company divested its Medley, FL-based property in January 2018. This transaction is anticipated to enhance the company’s operational efficiency and help in better utilization of resources.

Favorable Operating Conditions: We believe that building products companies are poised to benefit from the strengthening U.S. economy and healthy growth prospects of the global market. Considering the domestic housing market, increase in housing starts, as well as higher demand for repair and remodeling activities, will spur demand for building products. In addition, growth opportunities seem bright for the company in the industrial end-markets.

To leverage gains from favorable operating conditions, the company has been diligently working toward solidifying its product portfolio and improving production efficiency. Introduction of products — including seven new colors for the Charred Wood product line by UFP-Edge in January — will be beneficial. For 2018, the company anticipates generating $450 million revenues from new products.

Reward for Shareholders: Universal Forest ardently believes in rewarding shareholders handsomely, especially through dividend payments. Over the last five years, its annual dividend payment has grown from 14 cents in 2013 to 32 cents in 2017. After 6% hike in the semi-annual dividend rate announced in April 2018, the company’s annual dividend rate stands at 36 cents.

Other Stocks to Consider

Some other top-ranked stocks worth considering in the industry are Boise Cascade Company (BCC - Free Report) , Norbord Inc. (OSB - Free Report) and Trex Company, Inc. (TREX - Free Report) . While both Boise Cascade and Norbord sport a Zacks Rank #1 (Strong Buy), Trex Company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for these three stocks improved for the current year and the next year. Also, average earnings surprise for the last four quarters has been a positive 32.92% for Boise Cascade, 6.99% for Norbord and 11.68% for Trex Company.

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