Analyst Note| Spencer Liberman |
We are initiating coverage on Canfor Corporation with a fair value estimate of CAD 37 per share and a no-moat rating. While the firm’s commodity businesses, lumber and pulp, can be immensely profitable when demand is strong, margins crumble during times of weak demand as Canfor’s operations possess no structural competitive advantages. Fundamentally, lumber is a commodity. Building a moat in a commodity business typically necessitates a low-cost production position or a transportation cost advantage—something Canfor, along with its North American peers, fundamentally lacks.