Insights

Solid foundation for UFP Industries’ growth outlook

With the global roll-out of vaccines now underway, investors are on the lookout for sectors and companies that will benefit from the re-opening of economies.

The construction industry ranks highly as a top contender due to the expected building and infrastructure spending to boost economic growth.

In the US, President Joe Biden has pledged to allocate a US$2 trillion budget around infrastructure and job creation. This is in line with his presidential campaign promise to ‘Build Back Better’.

One of the companies that stand to gain from the anticipated building and infrastructure program is UFP Industries (NASDAQ: UFPI) – a manufacturer and distributor of wood and wood-alternative products.

Who is UFP Industries (UFPI) and what does it do?

Founded in 1955 as a supplier of lumber to the US manufactured housing industry, UFPI is now a multi-billion company with a presence in 170 facilities around the globe, employing more than 140,000 people. The company services three main markets including retail, industrial and the construction sector.

UFPI listed on the NASDAQ exchange in 1993 and raised US$20 million in equity for its expansion. With a listing price of US$2.46 per share, UFPI investors have seen hefty rewards over the years. The stock was trading near previous record highs around the US$64 level in early March, before pushing to new record highs above US$72 by the middle of the month.

UFPI’s growth strategy

Industry analysts following UFPI highlighted the company’s expansion and growth strategy solidly based on acquisition and continuous product innovation.

Since 1997 when the company made its first acquisition to enter the site-construction market, UFPI had been active in buying construction-related companies to boost its product lines. These acquisitions have boosted UFPI’s presence in truss manufacturing, composite decking, consumer products, concrete products, decking, fences and treated lumber manufacturing.

Its most recent acquisition was of J.C. Gilmores – an Australian distributor and supplier to the industrial and construction industries. According to a UFPI statement, the latest acquisition will extend the company’s presence in Australia and expand the company’s portfolio in protective packaging.

In his statement regarding the J.C. Gilmore acquisition, Dick McBride, executive vice president at UFPI said: “Australia is an important growth market for UFP Global Holdings, and Gilmores’ strong reputation provides a great entrance to a large consumable packaging market.”

With the Australian federal government also lining up a massive infrastructure spending program, this could be a well-timed acquisition for UFPI.

Three major markets

UFPI is focused on servicing three key markets that include:

  • Retail – this market covers a wide range of products from basic building materials to fencing and decking. This could be a strong growth segment in the years to come as more homeowners renovate or upgrade their properties.
  • Industrial – this market segment is serviced by UFPI’s designers and engineers who provide their expertise in industrial packaging solutions such as custom crates, steel packaging, hard cases and on-site packages and pallets for industrial sites.
  • Construction – UFPI serves as a one-stop supplier of construction products and services. From residential homes to multi-dwellings and commercial sites, this arm of the company can deliver a full package from design to transportation and installation.

Strong financials

During the recent reporting season, UFPI reported some strong financial figures that reflect the company’s growth trajectory. Here are some numbers to consider:

  • Shares jumped nearly 4% during after-hours trading on Feb 24, after the company reported impressive fourth-quarter 2020 results.
  • Both earnings and revenues not only surpassed market expectations
  • Earnings per share of US$1.02 per share, exceeded analyst expectations of 81 cents
  • Net sales of $1.39 billion surpassed the consensus mark of US$1.20 billion
  • New product sales grew 46% year over year.
  • Retail segment reported sales of $505.2 million during the quarter, up 76% year-on-year.
  • Industrial segment sales hit $309.1 million, a growth of 25% year-on-year
  • Annual dividend increased by 20% to 60 cents per share

Industry growth prospects

With many governments committing to rebuild economies and to support job creation to promote growth in a post-pandemic environment, the construction industry is in pole position.

In the US, analysts have highlighted the improving housing market as one of the key factors. As mortgage rates decline, more homeowners are resorting to renovation and home improvement. And with more people working and staying at home (during the pandemic and maybe beyond), demand for repair, renovation and home upgrades has risen over the past quarters.

All these bode well for UFPI.

Share price technical analysis

For the past decade, the shares of UFPI have been on an upward trend. From an adjusted low in the region of US$8 in 2011, the stock has had a nine-fold increase in price to reach current record highs in the region of US$72.

The company is clearly not immune to market-wide market corrections and fluctuations in the global economy. Along with many other global stocks, long-term charts show deep pullbacks in late 2018 and again in early 2020. However, investors have shown strong support for the stock with prices bouncing back quickly from these short-lived corrections, with price action subsequently extending the upward trend higher.

The combination of an accelerating long-term upward trend along with the recent decisive break to new highs bodes well for additional gains, with the region of US$64 to US$60 favoured to provide good support.

Conclusion

As the global vaccination program goes into full swing and as governments focus on their economic recovery plans, the construction industry will play a key role.

Aside from homeowners renovating or remodelling their properties, commercial and industrial building and infrastructure will also get massive financial support.

Given UFPI’s strong presence in the retail, industrial and construction segment of this multi-billion-dollar industry, we believe it is in an enviable position to take advantage of this massive opportunity.

We consider it a buy.


Alex Douglas is the managing director of Monex Securities Australia (AFSL 363 972), and is responsible for the overall growth of Monex in this region. He has held senior executive positions with numerous financial services companies both in Australia and Asia over the past three decades. Early roles in the industry included being a foreign exchange voice broker, a trader on the floor of the Sydney Futures Exchange and a senior analyst with Standard & Poor’s in Singapore.  Alex is a Certified Financial Technician (CFTe) and former board member of the International Federation of Technical Analysts (IFTA) as well as a sought-after author, speaker and market commentator.

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