Canfor Corp Valuation – July 2018 $TSE:CFP

Company Profile (excerpt from Reuters): Canfor Corporation is an integrated forest products company. The Company produces softwood lumber, pulp and paper products, remanufactured lumber products, engineered wood products, wood pellets and energy. Its segments include lumber, and pulp and paper. Its lumber segment includes logging operations, and manufacturing and sale of various grades, widths and lengths of lumber, engineered wood products, wood chips and wood pellets. Its lumber operations also include a finger-joint plant, two glulam plants, a whole-log chipping plant and a trucking division. The Pulp and Paper segment consists of three northern softwood market Kraft pulp mills and the Taylor pulp mill, all of which are owned and operated by Canfor Pulp Products Inc. (CPPI) in British Columbia. Its pulp and paper segment includes purchase of residual fiber, and production and sale of pulp and paper products, including Northern Bleached Softwood Kraft and Bleached Chemi-Thermo Mechanical Pulp, as well as energy revenues.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CFP – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,789,572,834 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.46 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2278.79% Fail
6. Moderate PEmg Ratio PEmg < 20 13.18 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.70 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.46 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.46 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $2.18
MG Growth Estimate 15.00%
MG Value $83.88
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $31.59
MG Value based on 0% Growth $18.52
Market Implied Growth Rate 2.34%
Current Price $28.72
% of Intrinsic Value 34.24%

Canfor Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.88 in 2014 to an estimated $2.18 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.34% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Canfor Corporation revealed the company was trading below its Graham Number of $32.18. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 13.17, which was below the industry average of 20.82, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.99.

Canfor Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.99
Graham Number $32.18
PEmg 13.17
Current Ratio 2.46
PB Ratio 1.70
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,429,500,000
Total Current Liabilities $582,000,000
Long-Term Debt $392,600,000
Total Assets $3,725,100,000
Intangible Assets $752,300,000
Total Liabilities $1,556,400,000
Shares Outstanding (Diluted Average) 128,626,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.42
Dec2017 $2.63
Dec2016 $1.14
Dec2015 $0.18
Dec2014 $1.28
Dec2013 $1.61
Dec2012 $0.18
Dec2011 -$0.40
Dec2010 $0.57
Dec2009 -$0.50
Dec2008 -$2.42
Dec2007 -$2.53
Dec2006 $3.31
Dec2005 $0.67
Dec2004 $3.22
Dec2003 $1.65
Dec2002 $0.07
Dec2001 $0.19
Dec2000 $1.28
Dec1999 $1.66
Dec1998 -$3.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.18
Dec2017 $1.49
Dec2016 $0.91
Dec2015 $0.72
Dec2014 $0.88
Dec2013 $0.55
Dec2012 -$0.16
Dec2011 -$0.57
Dec2010 -$0.54
Dec2009 -$0.83
Dec2008 -$0.52
Dec2007 $0.71
Dec2006 $2.15
Dec2005 $1.43
Dec2004 $1.64
Dec2003 $0.89
Dec2002 $0.32

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Canadian Stocks for Intelligent Investors – February 2017
Canfor Corporation Valuation – Initial Coverage $TSE:CFP

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Canfor Corporation Valuation – Initial Coverage $TSE:CFP
First Solar Inc. Valuation – November 2015 Update $FSLR
First Solar Inc. Annual Valuation – 2014 $FSLR


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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