Boise Cascade Removed From Goldman's Americas Buy List: 'Housing Leverage Proves Elusive'

Goldman Sachs downgraded Boise Cascade Co (NYSE: BCC) to Neutral and removed the stock from Americas Buy List as the company failed to show the expected leverage to better housing starts.

Boise Cascade reported disappointing Q3 earnings of $0.41, which came in below Wall Street's estimates of $0.55 estimates and a weak fourth quarter outlook.

"Despite single-family starts rising 8% YTD, and despite the acquisition of GP’s EWP business, BCC’s YTD EBITDA is flat with 4Q2016 EBITDA now expected to be flat to slightly down," analyst Brian Maguire wrote in a note.

Moreover, Maguire expects the weak industry conditions in plywood and I-Joists to likely to continue into 2017.

However, the analyst still believes the company’s mid-cycle EBITDA at BCC can be significantly higher than its new $158 million estimate and that Boise’s distribution business deserves a higher EBITDA multiple.

"[B]ut near-term headwinds at Wood Products earnings are likely to limit upside for the next several quarters until production and market issues are worked through," Maguire noted.

As such, Maguire lowered his price target by $9 to $25 and cut his 2016/2017/2018 EPS estimates to $0.94/$1.20/$1.83 from $1.38/$1.85/$2.44.

The analyst believes the fundamentals no longer supports "a price target sufficiently high enough to outweigh the lingering risks from new industry plywood capacity, increased imports, and challenges with re-starting and integrating GP’s EWP business."

At time of writing, shares of Boise Cascade fell 3.2 percent to $19.51.