Universal Forest To Gain From Buyouts, Solid Housing Market

We issued an updated research report on Universal Forest Products, Inc. (NASDAQ:UFPI) on Feb 28. The company’s earnings are projected to grow 10% in the next three to five years.

A snapshot of the company’s recently reported fourth-quarter 2017 results is provided below.

In the quarter, the company’s earnings per share grew roughly 50% year over year while its sales expanded 12.4% on the back of healthy segmental performance. Of the segments, Retail Building Materials’ sales increased 20% year over year while that for Industrial expanded 9% and for Housing and Construction increased 10%.

We believe that numerous growth factors or tailwinds currently underpin the company’s solid position in the building products industry. Below, we briefly discussed some of the potential drivers working in favor of the company.

Long-Term Growth Potential Solid: Universal Forest’s efforts of expansion in existing markets and entering new and unexplored markets will prove to be beneficial in the years ahead. Primarily operating in retail building material, construction and industrial end markets, the company serves retailers, distributors, builders of single and multifamily homes and other customers. Moreover, growing businesses in overseas markets will be advantageous.

Over the long term, the company anticipates offering high-quality products to its customers, having started new development and testing facilities. It aims to increase sales roughly 4-6% above positive GDP growth in the long run. 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.

Buyouts — Key to Expansion: Over time, acquired assets have helped Universal Forest leverage benefit from easy penetration into markets and expanded product offerings. In this regard, the buyouts of certain assets of Quality Hardwood Sales, LLC, Robbins Manufacturing Company and Go Boy Pallets, LLC in 2017 are worth mentioning. Since it got added to the company’s portfolio, Quality Hardwood Sales and Robbins Manufacturing have strengthened the company’s position in the hardwood products market while Go Boy Pallets assets have enabled expansion in the industrial packaging industry.

In addition, Universal Forest anticipates generating $290 million in revenues from idX buyout (completed in 2016) as well as saving on costs in 2018.

Shareholders’ Return: Universal Forest is committed to returning a higher value to shareholders through share buybacks and dividend payments. In October 2017, the company announced a 13.3% increase in semi-annual dividend rate while it paid the stock dividend by issuing two additional common shares for each common share in November 2017.

Solid Near-Term Prospects: Universal Forest anticipates gaining from the strengthening of demand in the U.S. construction market — solid housing starts and impressive demand for repair and remodel activities, the addition of customers and synergistic benefits from acquired assets in the near term. Sales from new product launches are predicted to be roughly around $450 million in 2018.

We believe that solid growth prospects have placed Universal Forest well to combat competitive threats from other players in the industry, like Louisiana-Pacific Corporation (NYSE:LPX) , Potlatch Corporation (NASDAQ:PCH) and Boise Cascade, L.L.C. (NYSE:BCC) .

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Universal Forest Products, Inc. (UFPI): Free Stock Analysis Report

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