Boise Cascade Company: All Signs Point To Buy (NYSE:BCC)

Overview

Boise Cascade Company (NYSE:BCC) manufactures wood products and distributes building materials throughout the United States and Canada. It operates in two segments: Wood Products and Building Materials Distribution. The company was incorporated in 2004 and is headquartered in Boise, Idaho.

After reviewing the company, I think it is a strong buy for long-term dividend growth investors based on a number of factors including its dividend, momentum, valuation, profitability, and growth.

In reviewing these factors, I will also be comparing Boise Cascade with some of its peers that operate in the same industry sector and have similar market caps. Those peers include: GATX Corporation (GATX), Air Lease Corporation (AL), Triton International Limited (TRTN), Herc Holdings Inc. (HRI), and FTAI Aviation Ltd. (FTAI).

Dividend

Boise Cascade is a newcomer to the Dividend Challenger list with five consecutive years of dividend growth. Dividend Challengers are stocks that have increased their dividends every year for at least five consecutive years. This list is maintained with the Dividend Champions (25+ years) and Dividend Contenders (10+ years). More information on these lists can be found here.

Looking at the chart below, Boise Cascade’s dividend growth during this time looks a bit confusing.

The reason for this is that Boise Cascade issues fairly regular special dividends. In 2018, the company’s dividend growth began. Its regular quarterly dividend of $0.07 increased to $0.09. In addition, a special dividend of $1.00 was announced. In 2019, the special dividend remained the same, while the company’s regular quarterly dividend increased to $0.10.

In 2020, the quarterly regular dividend remained steady at $.10, but the special dividend increased to $1.60 per share. In 2021, the regular dividend increased to $0.12, and for the first time, two special dividends are issued, one for $2.00 per share and one for $3.00 per share.

The dividend growth continues into 2022 with the company’s regular quarterly dividend increasing from $0.12 to $0.15. Two special dividends were once again issued, but this time, they were for less amounts, $2.50 and $1.00. So far in 2023, one special dividend of $3.00 has been issued.

Boise Cascade announced its latest dividend increase on July 28th and raised its dividend by 33% from $0.15 to $0.20 per share. I’m fairly certain, another special dividend will be announced in October as has been the case for the past two years.

Momentum

Boise Cascade’s momentum continues to pick up speed. Back in June, the stock was upgraded to ‘buy’ at Truist with a price target of $100. Looking at the chart below, you can see that the stock has already surpassed that target and looks to keep climbing.

The stock is up over 55% year to date and looking at the chart below, you can see that its impressive price appreciation is not a short-term trend.

Let’s take a look at how BCC’s price appreciation has compared to its peers in both the short and long term. Looking at the chart below, you can see that only FTAI Aviation has performed better YTD than Boise Cascade.

This second chart shows that once again only one stock outperforms Boise Cascade over the long term. This time it is Triton International that has the better price appreciation.

Valuation

For a stock that has increased in price by over 55% in the past eight months, you would think that its current valuation would be overvalued, but that doesn’t appear to be the case with Boise Cascade.

The stock’s PE ratio is 7.34x and looking at the chart below, while the ratio has increased this year, it remains on the low end of its 3-year average.

The same can be said when looking at Boise Cascades’ price to book value. While it has increased this year, it remains well within the stock’s recent historical average.

One of the best signs I saw when looking at various valuation metrics for Boise Cascade is the chart below that shows the 3y median Price to Free Cash Flow value.

This chart shows the same thing that several other factors show when reviewing Boise Cascade, and that is that the stock and the company appear to be moving in the right direction. But let’s compare how these valuations compare to Boise Cascade’s peers.

Looking at the chart below, you can see that Boise Cascade is the most attractively valued stock based solely on the PE ratio.

When looking at price to book value, you can see that Boise Cascade sits in the middle of the pack with regard to this valuation.

Profitability

When reviewing the profitability of a company, I like to start at the basics and look at its gross profit margin. Boise Cascade’s gross profit margin sits above 20% which is good but not great, especially for the company’s industry sector.

What makes its profit margin look better is the trend you can see in the chart above, in which the company continues to increase its gross profit margin over time.

As I stated above, Boise Cascade’s profit margin is good, but not great, for this industry sector. That can be seen by the chart below that shows BCC has the lowest profit margin of the group of six stocks.

This doesn’t look great, but when you look at the group of six stocks and see the change in profit margin during this period of time, you can see that Boise Cascade has improved its profit margin the most.

Moving from the income statement to the balance sheet, let’s take a look at the return on assets, return on equity, and return on invested capital for Boise Capital.

Unlike Boise Cascade’s gross profit margin, these are terrific ratios for this industry sector. Looking at the three charts below you can see that BCC compares very favorably compared to the other five stocks reviewed.

Growth

Compared to the other factors reviewed above, Boise Cascade’s growth is its one weak spot. Looking at Seeking Alpha’s factor and dividend grades (shown below), you can see that the stock has a B or better in every factor with the exception of growth, in which it has an F.

You can see that the failing grade is a fair one based on the chart below that shows significant recent drops in both revenue and earnings.

While this looks bad, I do think it’s a short-term problem for BCC. When you look further back, the company’s long-term growth looks much better.

It’s no surprise that Boise ranks last out of the six stocks when looking at 1-year revenue and earnings growth; however, when looking at three-year growth, Boise compares far more favorably.

While I agree that revenue/earnings growth has been a challenge for Boise Cascade in the near term, I do feel that the company is on the right track in terms of turning things around. Looking at the last 2 quarters, the company beat both revenue and earnings estimates by a wide margin.

In Q1, Boise Cascade beat both earnings and revenue estimates. The company beat earnings estimates by $0.76 per share and beat revenue estimates by $60M. For Q2, things get even better with an earnings beat of $1.13 per share and a revenue beat of $110M.

Conclusion

Boise Cascade’s revenue and earnings are tied very strongly to the housing market. In the company’s latest earnings call, it was stated that total U.S. housing starts and single-family housing starts declined by 11% and 14%, which helps to explain some of the company’s short-term struggles with revenue and earnings growth.

While uncertainty remains in terms of the future of the housing market due to inflation, mortgage rates, home improvement spending, and other factors, I feel that Boise Cascade remains ready to handle demand changes in the short term and remains in a good position for long-term growth.

As reviewed above, Boise Cascade compares quite favorably to its peers throughout the various factors discussed, including its dividend.

I feel that many investors will take a look at BCC’s low dividend yield compared to its peers (as seen in the chart below) and dismiss it as too low for consideration.

The problem with this is that it does not take into account the fairly regular special dividends that BCC has issued over the past several years. The special dividends (not included in its yield) have been significant in both total returns and overall dividend growth.

Because of its strong dividend growth and attractive yield (when taking into account special dividends), fantastic returns on assets, equity, and invested capital, its improving gross profit margin, its current valuation, and a strong history of price appreciation, I think that Boise Cascade is a great buy option for long-term dividend growth investors. As always, I suggest individual investors perform their own research before making any investment decisions.