Credit Suisse Analyst Upgrades West Fraser Timber Despite Housing Market Headwinds

Credit Suisse analyst Andrew Kuske upgraded West Fraser Timber Co Ltd WFG from Neutral to Outperform and lowered the price target from $100 to $95.
From the summer stock peaks, West Fraser shares delivered a roughly 25% negative capital return versus ~9% and 1% for the S&P/ TSX Composite and the S&P 500, respectively.
The analyst fully acknowledges some housing market headwinds; however, the rate debate, housing market trends in H2 2023, and industry actions collectively provide an interesting risk-reward for WFG's shares, in the analyst's view.
The analyst added that the continued deceleration of housing market trends, weaker lumber prices, and in some cases, higher underlying cost structures motivate a collection of curtailments.
According to the analyst, such actions will help re-balance parts of the market and are broadly supportive of the upgrade to Outperform thematically.
The analyst said forest product stocks are notoriously cyclical and often with rather accentuated moves in both directions, the perfect timing is typically elusive.
The analyst remarked that rate moves in H2 2023 (potentially declining), along with the current housing price compression, bode well for affordability and return to improved prices and solid wood demand.
The analyst believes West Fraser has an enviable position in both lumber and oriented standard board (OSB) markets, however, pricing and housing dynamics are not currently supportive.
Price Action: WFG shares are trading higher by 3.72% at $77.33 on the last check Tuesday.

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