Desjardins Capital Markets reduced Montreal-based railway tie brewer Stella-Jones on Monday for concerns the inventory might be running out of steam.
Desjardins now views the stock as a store, and lowered their target price to be able to $43 from $45.
Analyst Benoit Poirier noted the company, which makes solid wood for telephone exams in addition to the wood designed for railroad tracks, completed a relatively solid next quarter in 2016.
Stella-Jones profit was down four per cent year-over-year for the 3 months ending December 30 to $342 million, however that was in line with prices. The company’s profit of railway neckties, in fact, exceeded Desjardins outlook, pulling in $113 million compared to an $84 million approximation. (Underperforming sales of home lumber and mobile phone pole products were definitely the cause of the every quarter revenue drop.)
In additional good news, revenue for that 2016 fiscal year was initially up 15.A pair of per cent to $1.83 billion from $1.Fifty five billion the year before.
Estimates intended for 2017, however, are not looking positive. Stella-Jones expects its railroad tie revenues to say no to by ten to twelve % year-over-year in 2017, with an specifically hard slump while in the first six months. This decline is likely to be assisted by pricing pressure, with volumes likely to slide two to three per cent year-over-year.
Stella-Jones, which has a market cap involving $2.1 billion, might even see its shares “buy and sell sideways until the last option part of 2017, pending more visibility on train tie industry supply levels or a pick-up with tie demand,” based on Poirier. The financial difficulties put on the company by way of difficult environment the particular rail-tie industry also signify it is unlikely Stella-Jones can make any significant cash deployments temporarily.
While the company has a lower EBITDA forecast of approximately 13 % for 2017 against Fourteen.5 per cent previously, it’s not all bad news. Desjardins expects that next season Stella-Jones inventory levels will eventually normalize and supply costs will drop, bringing its EBITDA mark up closer to 15 % come 2018.
Shares in Stella-Jones ended up down 4.Some per cent $39.66 during afternoon trading regarding Monday.