Canadian lumber stocks are getting hammered from multiple directions. West Fraser Timber (TSX:WFG) and Canfor (TSX:CFP) have both declined by roughly 25% over the past year, while the broader Canadian market reached record highs, reflecting a brutal combination of weak U.S. homebuilding and collapsing lumber prices.
President Trump just made things worse by slapping an additional 10% tariff on Canadian softwood lumber, bringing total levies to around 45%. He claims that U.S. forestry resources can meet domestic needs without relying on Canadian imports.
The U.S. National Association of Home Builders is opposing these tariffs because they drive up construction costs. Scotiabank analyst Ben Isaacson estimates the U.S. would need 50 new mills to replace Canadian lumber under normal demand.
Moreover, the specialized equipment manufacturers can barely supply two mills annually, and new facilities would require expensive pulp mills to handle waste products. U.S. housing starts fell 7% in August to a two-and-a-half-year low, and builder sentiment stays below historical averages.
Let’s see if Canadian lumber stocks can gain momentum in the last quarter of 2025 and beyond.
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Is this TSX stock undervalued?
In Q2 of 2025, West Fraser reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $84 million, indicating a margin of 6%, as it navigated a downturn in lumber markets.
U.S. housing starts averaged just 1.32 million units on a seasonally adjusted basis, due to elevated mortgage rates. Its lumber segment posted just $15 million in adjusted EBITDA, down from $66 million in the prior quarter, hurt by lower pricing, higher fibre costs, and inventory write-downs.
Despite the challenging operating environment, West Fraser maintains a strong balance sheet with nearly $1.7 billion in available liquidity and a net cash position of $310 million.
Analysts tracking West Timber forecast it to report an adjusted loss of $1.32 per share in 2025. However, the company is forecast to end 2029 with adjusted earnings of $10 per share. If the TSX stock is priced at 15 times forward earnings, it should gain close to 65% within the next four years, after adjusting for dividends.
Is this TSX timber stock a good buy?
Canfor generated adjusted EBITDA of $62 million in its lumber business during the second quarter, roughly flat with the prior period despite announcing the closure of its Estill and Darlington facilities in South Carolina. Excluding restructuring charges, lumber EBITDA reached $68 million, supported by solid European performance and the ramp-up of low-cost Southern operations.
Despite a challenging backdrop, Canfor announced the pending acquisition of three Swedish sawmills from Karl Hedin, which will shift the company’s geographic mix to roughly 35% U.S. South, 35% Sweden, and 30% Western Canada.
The Swedish mills offer high-quality fibre in a new operating region, reducing their reliance on U.S. markets ahead of higher duty rates taking effect.
Management indicated it plans to operate through the cycle rather than curtail further, banking on geographic diversification to weather ongoing uncertainty and broader trade tensions.
Given consensus estimates, Canfor is forecast to report an adjusted earnings per share of $3.59 in 2029, compared to a loss per share of $3.07 in 2025. If the TSX stock is priced at 10 times forward earnings, it could triple within the next four years.
