3 Wood Stocks Beating the Odds in a Tough Industry Climate

Industry Overview - The Zacks Building Products – Wood industry is currently facing challenges such as rising construction costs, potential housing project delays, and affordability concerns for consumers [1] - Spending on home repair and remodeling has decreased from pandemic highs due to elevated mortgage rates impacting consumer budgets [1][2] - There is a strong need for investments in critical replacements and modernization of aging housing stock, alongside increased funding for infrastructure and carbon/ESG-related projects [2][6] Trends Impacting the Industry - The U.S. housing market is constrained by high interest rates and low consumer confidence, affecting demand for lumber and remodeling [4] - The reimplementation of tariffs on Canadian softwood lumber could lead to supply shortages and increased material costs, as Canada supplies about 30% of U.S. softwood lumber [4] - Volatility in lumber prices remains a significant concern, impacting inventory costs and profit margins [5] Company Strategies - Companies are focusing on acquisitions, product innovation, and efficient cost-reduction strategies to navigate current challenges [7][8] - Operational excellence is being emphasized, including improvements in merchandising, harvest, and transportation efficiencies [8] Industry Performance - The Zacks Building Products – Wood industry has outperformed the broader Zacks Construction sector and the S&P 500 over the past year, gaining 21.6% compared to the sector's 8.8% and the S&P 500's 12.3% [13] - The industry currently has a Zacks Industry Rank of 155, placing it in the bottom 37% of over 250 Zacks industries, indicating dull near-term prospects [9][10] Earnings Outlook - Analysts have shown decreasing confidence in the industry's earnings growth potential, with aggregate earnings estimates for 2025 declining from $2.22 to $2.11 per share [11] - Despite the bleak near-term outlook, some companies are highlighted for their potential to capitalize on fundamental strengths [12] Notable Companies - Worthington Enterprises, Inc. (WOR): Gained 48.4% over the past year, with an upward estimate revision for fiscal 2026 earnings to $3.65 from $3.14 per share [22] - PotlatchDeltic Corporation (PCH): Gained 5% over the past year, with an upward estimate revision for 2025 earnings to 88 cents from 83 cents per share [26] - Trex Company, Inc. (TREX): Experienced a loss of 20.9% over the past year, but has seen an upward estimate revision for 2025 earnings to $2.21 from $2.16 per share [30]