Stella-Jones; Stellar Numbers with Unknown Growth in Sight

Stella-Jones is a leading producer of industrial pressure-treated wood products in North America. The company manufactures and distributes railway ties, utility poles, residential lumber, and industrial wood products across the continent.

By products, utility poles account for 35% of the company’s 2020 revenue, followed by railway ties (29%), residential lumber (26%), logs and lumber (6%), and industrial products (4%). The U.S. accounts for 68% of the total Stella-Jones’ sales, while Canada constitutes the remaining 32%. The company also has a small presence in Latin and South American markets.

The company operates 40 wood-treating facilities, finished goods yards, 12 pole peeling operations, and an extensive distribution network across North America. These facilities are located in six Canadian provinces and nineteen American states. It provides a wide range of residential lumber and accessories to retailers for outdoor applications and specialized wood products for industrial applications.

Stella-Jones is known for its premium products and services, agile operations, secured supply chains, and prompt delivery anywhere on the continent.

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Revenue Growth & Market Exposure

Stella-Jones has come a long way from humble beginnings as a four-plant wood-treating unit in 1992 to a leading North American lumber and pole supplier operating 40 facilities today. North America’s largest railroads, telecom providers, electrical transmission utilities, and residential retail market are Stella-Jones leading customers. The company also caters to residential and industrial marketplaces. Last year marked the 20th consecutive year of sales growth.

Stella-Jones is a leading supplier of critical components of the economy’s physical infrastructure. Stella-Jones’ poles are made from a variety of premium wood species to suit different climates and unique customers’ specifications across the continent.

The company is expanding its geographical presence, increasing its capacity, strengthening its networks, and investing in quality acquisitions. The McFarland acquisition back in 2012, Tangent Rail in 2010, and Ram Forest Group and Ramfor Lumber in 2015 were transformative acquisitions for Stella-Jones. 

US sales now account for 68% of total sales compared to 64% in 2011. Residential lumber also grew from 10% of sales in 2014 to 26% in 2020. Its EBITDA growth last year was driven by volume and pricing gains across its three core product categories. Stella-Jones also witnessed an organic sales growth of 10%. The latest quarter was marked by high market prices for lumber, strong demand for residential lumber, and operational efficiency gains.

Stella-Jones could also gain from cross-selling opportunities in its core markets. The company is expecting organic sales growth ranging between 15% – low 20% with residential lumber sales expected to increase 45% to 65% and utility poles sales expected to increase in the mid to high-single digits in 2021.


Stella-Jones is a Dividend Aristocrat returning $384 million to shareholders over the last decade. It sports an annual average yield of 1.45% and a very low payout ratio of 20%. The company last raised its dividend for the 16th consecutive year by 20% and has been compounding its dividend growth by 20%+ CAGR over the last decade. It has a target payout ratio of 20%-30% of the prior year’s EPS.

Strong cash flows have helped the company to grow its business, both organically and through acquisitions while providing a solid return to shareholders. Stella-Jones is also focusing on network expansion to improve efficiencies and increase its capacity. It spent $628 million in acquisitions and $404 million in capital expenses since 2010. Stella-Jones is targeting $50-$60 million in CapEx annually.

The company has a strong reputation for reliable and consistent services. This has resulted in sticky customer relationships. A majority of Stella-Jones’ sale of utility poles are through multi-year contracts and public tenders which provides visibility and stability of cash flows. The company also benefits from steady demand for its core products in the form of regular maintenance of railway ties and utility pole product categories, which are integral to the North American basic transportation and utility infrastructure. 

Stella-Jones is all set to benefit from improving margins across all product categories. Trends like additional infrastructure investments for 5G network expansion, large untreated railway tie inventory availability, and growing demand for new construction and outdoor renovation projects in the North American residential and commercial markets act as strong tailwinds for the company.

Stella Jones (SJ) historical yield
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West Fraser Timber, Canfor Corp, Norbord Inc., Interfor Corp, and Western Forest Products Inc. are Stella-Jones’ top competition. Stella-Jones’ strong focus on customer satisfaction, core products, and key markets provide it an edge over the competition.

A strong balance sheet, extensive distribution, and manufacturing network across North America, stable source of wood supply, and strategically located wood-treating facilities are its key competitive advantages.

Bottom Line

Stella-Jones is in a good position to leverage from its leading position as a manufacturer of basic components of North American industrial infrastructure. It is anticipating growth across its entire core product categories and should also benefit from the growing capital expenditures and infrastructure improvements.

A resilient business model, leadership position in product categories, extensive network to service customers, and solid financial position are key growth enablers for the company.

SJ vs TSX vs SP500 2021
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Stella Jones (SJ) historical pe
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