Raymond James reiterated a Strong Buy rating on Interfor Corp (TSX: IFP) after the Canadian lumber producer's shares fell 11% on November 6, despite beating earnings consensus by 15% and logging its fourth straight earnings beat.
The decline stemmed from investor concern over Mercer International's bankruptcy filing and its impact on Interfor's Castlegar sawmill in British Columbia, which supplies wood chips to Mercer's adjacent Celgar pulp mill. Raymond James estimates Interfor generates only C$4 million to C$6 million annually from those chip sales, a small fraction of the roughly C$90 million in market value lost during the selloff.
Following management discussions, Raymond James said Interfor had reduced receivables and shortened payment terms to limit counterparty risk. Mercer also assured investors its mills would continue operating through restructuring, though planned fourth-quarter maintenance at Celgar will reduce production by about 23,000 tonnes, or less than 4% of annual output.
Raymond James sees potential upside of around 300% in a normalized housing environment. The brokerage highlighted industry-leading margins of approximately C$80 per thousand board feet and positive free cash flow generation. Interfor trades at roughly four times mid-cycle EBITDA, while its production capacity is valued at around $300 per thousand board feet compared with estimated replacement costs of approximately $1,000.
Raymond James included Interfor on its Analyst Current Favorites list and cited seasonal tailwinds for lumber stocks.