For Canadian timber company West Fraser Timber (TSE:WFG), the recent move from the United States to increase tariffs on, well, pretty much everything not made within is hitting hard. And there are some signs that lumber operations may have to shift south in a bid to avoid tariff hits. The idea did not sit well with investors, and West Fraser Timber shares slipped fractionally in Thursday morning’s trading.
Basically, the idea is simple, though not exactly pleasant. Trees are trees. They are a remarkably fungible item; a tree from Canada is pretty much, though not quite, identical to the same species of tree from the United States. So a tree grown in the United States, that does not come with a tariff, is thus more attractive than a Canadian tree, which does.
In fact, new reports suggest that tariffs on Canadian lumber might go as high as 40%. Right now, there is a tariff of 14.54%, reports note, and throwing another 25% on top of that sends Canadian lumber prices blasting up. Though there is a pause in place, that pause runs out April 2, and leaves plenty of Canadian lumber operations wondering just what they are going to do. The acrimony between Canada and the United States over timber has been around a lot longer than Trump, though; reports suggest the original problems have been in place since the 1980s.
A Buyback Plan
While the issue of timber sourcing could be a problem for West Fraser, it is addressing more immediate problems right now by renewing its Normal Course Issuer Bid (NCIB). This will allow the company to buy up as many as 3,868,177 shares, a move that started up just days ago.
A large-scale share buyback—at current prices that represents nearly C$400 million worth of stock—will likely help shore up stock prices, and give West Fraser some operating room in case it suddenly needs to buy a whole lot of timber land in the United States. But it will also likely leave West Fraser a bit short of cash to go into a major land buy. That also assumes it can make such a deal to begin with. While there has been more than a little upheaval around Chinese purchases of American farmland, Canadians buying timber land may not be so frowned upon.
Is West Fraser Timber Stock a Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on TSE:ATD stock based on four Buys assigned in the past three months, as indicated by the graphic below. After a 3.71% loss in its share price over the past year, the average TSE:WGF price target of C$161.15 per share implies 45.58% upside potential.
See more TSE:WFG analyst ratings
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