Boise Cascade: Zacks’ Bull of the Day Play

Earnings estimates have been soaring for Boise Cascade Company (BCCSnapshot Report) after the company delivered strong Q3 results on October 23. Analysts unanimously raised their estimates for both this and next, sending the stock to a Zacks Rank #1 (Strong Buy).

While the share price has soared too, valuation still looks reasonable at 15x forward earnings.

Boise Cascade Company manufactures engineered wood products, plywood, lumber, and particleboard and distributes a wide variety of building materials as a wholesaler. It has a market cap of $1.4 billion.

Third Quarter Results

Boise Cascade delivered strong third quarter results on October 23. Earnings per share came in at 82 cents, crushing the Zacks Consensus Estimate by 17 cents. It was more than double the EPS in the same quarter last year.

Sales soared 12% year-over-year to $983.3 million, driven by a 26% increase in Wood Product sales. Building Materials Distribution sales rose 7%. The company benefited from a 15% increase in total U.S. housing starts in the quarter, which drove higher sales prices and volumes for its products.

Operating income surged 84% year-over-year as the operating margin expanded from 3.5% to 5.7%. This was due largely to a decline in materials, labor and other operating expenses (excluding depreciation) as a percentage of sales from 86.5% to 84.2%.

Estimates Soaring

 

Following strong Q3 results, analysts unanimously revised their earnings estimates significantly higher for Boise Cascade for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $2.12, up from $1.84 before the Q3 report. The 2015 consensus is currently $2.57, up from $2.25 over the same period.

Based on consensus estimates, analysts are projecting 76% EPS growth this year and 22% growth next year.

Reasonable Valuation

Shares of Boise Cascade have soared in recent weeks, but the valuation picture still looks reasonable. The stock trades around 15x 12-month forward earnings, which is a discount to the industry median of 22x. Its enterprise value to cash flow ratio of 12x is also below the industry median of 18x.

The Bottom Line

With excellent earnings momentum, expanding profit margins, strong growth projections and reasonable valuation, Boise Cascade Company offers investors attractive upside potential.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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