Mining & Metals
CIBC Provides its Q1/26 Forestry, Building Products & Packaging Preview
CIBC Capital Markets on Tuesday provided its "Q1/26 Forestry, Building Products & Packaging Preview" and said that heading into first quarter earnings season, it remains cautious on wood/building product equities as elevated mortgage rates are "likely to continue weighing on demand".It further said that while there was a level of optimism from some industry participants going into the key spring selling season, which kicked off in early February, there has been "little indication of a material pickup in demand"."Moreover, the onset of the conflict in the Middle East has further eroded consumer confidence, which was accompanied by a spike in mortgage rates (currently sitting ~30 bps higher than pre-war levels at 6.3%), further adding to homebuyer affordability challenges," said CIBCCIBC also said that it sees added inflationary pressures, including freight, diesel and resins, for several companies under its coverage, posing downside risk to Q2 consensus estimates."That being said, Canadian lumber companies should see moderating duties in the back half of the year, with the preliminary AR7 combined AD/CV "All Others" rate of 24.83% announced (vs. the current rate of 35.16%)," added CIBC.CIBC also said that CCL Industries (CCL-B.TO) remains its top pick across its Forestry, Building Products & Packaging coverage universe, given the difficult housing backdrop weighing on wood/building product equities.CIBC believes CCL's diversified global platform and end-market exposure should support "steady top-line growth over the cycle," supported by continued RFID growth and benefits from recent business wins and capital projects."With leverage of only 0.8x, CCL is well positioned to be opportunistic with M&A, buybacks and organic investments," added CIBC.It further said that, among its Paper & Packaging names, it also rates Transcontinental (TCL-A.TO) outperformer given the company's "strong FCF generation, margin improvement initiatives and further M&A prospects".Across its broader housing-related coverage, CIBC said it has an outperformer rating on ADENTRA (ADEN.TO) and Weyerhaeuser (WY)."While wood product prices have moved higher, our channel checks indicate that consensus estimates for wood products companies may be overly optimistic for the first quarter," said CIBC. "Further out, consensus still looks overly aggressive on most wood names for 2026/2027 given elevated mortgage rates, weak consumer confidence and potentially higher cost inflation."CIBC added that its largest adjustments are for Canfor (CFP.TO), West Fraser Timber (WFG.TO) and WY, where for the next two years, CIBC is reducing estimates by an average of 20%/12%, leaving its revised estimates for 2026/2027 approximately 26%/10% lower than consensus.CIBC lowered its price targets on Canfor from C$16 to C$15, Mercer International (MERC) from US$2.00 to US$1.75, Stella-Jones (SJ.TO) from C$102 to C$96, and West Fraser from C$108 to C$102, "largely reflecting weaker commodity price estimates.""While our expected total return for Mercer is notably higher, given limited share price liquidity and greater volatility in MERC's share price, we believe a much higher return is necessary on the micro-cap pulp equity to warrant a more constructive rating," added CIBC.CIBC increased its price targets on ADENTRA from C$42 to C$44 and Doman Building Materials Group (DBM.TO) from C$11.00 to C$11.50, "reflecting higher valuation multiples given continued M&A activity in the distributor space."CIBC said that it is also raising its price target on CCL from C$102 to C$103, on "improved confidence in the company's ability to quickly pass through rising input costs."Price: $86.25, Change: $-0.35, Percent Change: -0.40%
$ADEN.TO$CCL-B.TO$CFP.TO$DBM.TO$SJ.TO$TCL-A.TO$WFG.TO