Chicago, IL – May 7, 2025 – Today, Zacks Equity Research discusses PotlatchDeltic Corp. PCH and Worthington Enterprises, Inc. WOR.
Link: https://www.zacks.com/commentary/2463328/2-wood-stocks-worth-watching-defying-challenging-industry-landscape
The Zacks Building Products – Wood industry has been navigating through a challenging landscape comprising increased construction costs, potential delays in housing projects, and a strain on affordability for consumers. Additionally, the tariffs may prompt retaliatory trade measures, further complicating international trade relations.
Spending on home repair and remodeling (R&R) activities has declined from the highs seen during the pandemic due to elevated mortgage rates. The rise in rates has made homeownership unaffordable for many potential buyers in the U.S. housing market, creating challenging demand conditions for companies in the wood industry.
However, there is still a strong need for investments in critical replacements, addressing home performance issues, and modernizing the country's aging housing stock. Additionally, increased funding for infrastructure and carbon/ESG-related projects has been a positive development. While concerns persist regarding high mortgage rates and cautious consumer spending, effective cost management, ongoing product innovation, and strategic acquisitions are expected to support industry players such as PotlatchDeltic Corp. and Worthington Enterprises, Inc..
The Zacks Building Products – Wood industry includes forest product companies and manufacturers of lumber as well as other wood products used in home construction, repair and remodeling along with the development of outdoor structures. Companies in the industry design, manufacture, source and sell flooring products like tile, wood, laminate, vinyl, and natural stone flooring products, as well as decorative and installation accessories.
The industry players are also involved in the manufacturing and distribution of wood and plastic composite products, along with related accessories, mainly for residential decking and railing applications. The industry also includes timberland real estate investment trusts, or REITs.
High Rates, Trade Policy and Tariffs: The industry's prospects are highly correlated with the U.S. housing and the R&R market (considered one of the largest in terms of lumber demand) conditions. The U.S. housing market remained constrained by elevated interest rates and subdued consumer confidence. Buyer urgency was low in both new and existing home markets, and large public builders continued to use rate buydowns to stimulate demand. Economic uncertainty and ongoing weakness in home sales and building material sales are limiting residential remodeling.
Meanwhile, the reimplementation of tariffs on Canadian softwood lumber by President Trump in 2025 presents significant implications for the U.S. wood industry. While these measures aim to bolster domestic lumber production, the U.S. industry may struggle to meet the sudden surge in demand, potentially leading to supply shortages and further price inflation.
Currently, Canadian lumber imports face a 14.54% duty, with potential increases to 34.5% or higher anticipated later this year. Given that Canada supplies approximately 30% of U.S. softwood lumber, these heightened tariffs are poised to escalate material costs, particularly impacting the housing sector. The National Association of Home Builders estimates that such tariffs have already added around $10,900 to the cost of constructing a new home.
Rapid Lumber Market Swings: Historically, volatility in lumber prices has been a major concern for the wood industry. Any unusual rise in the cost of lumber products sold by primary producers increases the cost of inventory and limits margins on fixed-priced lumber products. Yet, a decline in costs eats into profits as products sold are indexed to the current lumber market.
Meanwhile, the timberland business is governed by federal rules and state forestry commissions, which are subject to frequent changes, thereby affecting businesses. Due to the very nature of their properties, timberland REITs are required to follow eco-friendly mandates in their trade.
Higher Spending on Infrastructure & Carbon/ESG Projects: The projected rate cuts are poised to increase affordability, stimulate residential activity and set the stage for growth in the wood industry. Additionally, government initiatives such as the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) are expected to boost infrastructure spending. This emphasis on modernization and clean energy is anticipated to drive growth for companies within the wood sector.
Acquisitions, Product Innovation & Efficient Cost-Reduction Strategies: The companies also bank on acquisitions and divestitures to expand and improve portfolio quality. New products continue to be an important top-line driver for the industry players. Also, efforts to introduce products are likely to have helped the players.
Again, in a bid to reduce costs, companies have been reducing the cost structure of their facilities through the sale or shutdown of underperforming units and manufacturing facilities, as well as investments in technology. Also, the industry players have been focusing on operational excellence, comprising merchandising for value, harvest, and transportation efficiencies and boosting harvest to capture seasonal and short-term opportunities.
The Zacks Building Products – Wood industry is an 11-stock group within the broader Construction sector. The Zacks Wood industry currently carries a Zacks Industry Rank #168, which places it in the bottom 32% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of a lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. Since January 2025, the industry's earnings estimates for 2025 have decreased to $2.22 per share from $2.48.
Despite the industry's blurred near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it's worth taking a look at the industry's shareholder returns and current valuation.
The Zacks Building Products – Wood industry has outperformed the broader Zacks Construction sector but lagged the Zacks S&P 500 Composite over the past year.
Over this period, the industry has gained 4.2% against the broader sector's 5.5% decline. The Zacks S&P 500 Composite has gained 9.8% over this period.
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing wood stocks, the industry trades at 22.76 compared with the S&P 500's 20.97 and the sector's 17.33.
Over the last five years, the industry has traded as high as 26.35X, as low as 10.23X, and at a median of 18.74X.
We have highlighted two stocks from the industry that have been capitalizing on fundamental strengths.
Worthington: Headquartered in Columbus, OH, this company operates as an industrial manufacturing company. Worthington has been gaining from a combination of operational excellence, strategic innovation, and disciplined growth execution. The company has been benefiting from margin-enhancing mix improvements, successful integration of recent acquisitions like Ragasco, and normalized seasonal demand across its businesses.
Continued investment in automation, facility modernization, and the initial rollout of its 80/20 transformation initiative also contributes to greater efficiency and margin expansion. Product innovation, including new launches in both the Building and Consumer segments, laid the groundwork for future growth, while strategic M&A and expanded partnerships further reinforced its competitive positioning. These factors, along with robust joint venture contributions and a resilient U.S.-based manufacturing model, positioned Worthington to navigate macro uncertainties and sustain long-term value creation.
Worthington— a Zacks Rank #2 (Buy) company — lost 6% over the past year. Nonetheless, WOR has seen an upward estimate revision for 2025 earnings to $2.75 from $2.67 per share over the past 30 days. The Zacks Consensus Estimate for its fiscal 2025 earnings per share (EPS) is expected to register a 3.2% year-over-year decline. Worthington earnings surpassed the consensus mark in the last-reported quarter by 24.7%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
PotlatchDeltic: Headquartered in Spokane, WA, PotlatchDeltic is a leading REIT. The company's broad-based strength across timberlands, wood products, and real estate, as well as operational discipline, pricing trends, and strategic investment, has been driving growth. PotlatchDeltic maintained robust liquidity levels, supporting its strategic priorities, including capital return to shareholders through dividends and share repurchases.
Forward-looking optimism stems from potential market stabilization and expected interest rate reductions, which may catalyze recovery in housing and repair markets. Emerging opportunities in solar development and lithium exploration underpin future growth potential. The standout contributor was the Waldo sawmill in the first quarter, now operating at its 275 million board foot nameplate capacity, which enhanced competitiveness and reduced processing costs by 30%.
PotlatchDeltic— a Zacks Rank #3 (Hold) company — has lost 8.9% over the past year. Nonetheless, PCH has seen an upward estimate revision for 2025 earnings to 83 cents from 81 cents per share over the past seven days. The Zacks Consensus Estimate for 2025 EPS is expected to register 196.4% year-over-year growth. PCH earnings surpassed the consensus mark in three of the trailing four quarters and met on one occasion, with the average surprise being 88.3%.
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