Plum Creek Timber Co. Inc. (PCL): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are upgrading our recommendation on Plum Creek following better-than-expected third-quarter 2014 earnings results. The company's adjusted earnings came above the Zacks Consensus Estimate as it benefited from growth in operating income of the timber resources segments. Going forward, we believe that the company's timber lands and other assets acquisition from MeadWestvaco would be cash-flow accretive in 2014. Moreover, the company remains committed toward enhancing shareholders' value. It plans to sell timberland at full private market price and use the proceeds to buyback shares and repay debt. But tepid growth in the residential construction market, a decline in harvest volumes and anticipated slower growth in log prices raise our concern. However, we believe that as Plum Creek is having a notable exposure in Southern sawlogs, a rebound in housing starts can be well capitalized on by the company, going forward.

Overview:

Based in Seattle, WA, Plum Creek Timber Company Inc. is a leading publicly held timber real estate investment trust (REIT) and the largest owner of private timberland in the U.S. The company produces lumber, plywood and medium density fiberboard (MDF) at wood product manufacturing facilities in the Northwest. The company also has natural resource businesses that focus on opportunities resulting from property ownership. It includes the scope for mineral extraction and natural gas production as well as communication and transportation.

Plum Creek reports its operational data under five business segments. It includes timberland operations in two business segments: the Northern Resources Segment and the Southern Resources Segment.

Northern Resources Segment comprises timberlands in Maine, Michigan, Montana, New Hampshire, Oregon, Vermont, Washington, West Virginia and Wisconsin. Timber harvested in the Northern Resources segment is sold as logs to domestic mills and used in its own manufacturing facilities as well. The Southern Resources Segment consists of timberland in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas. Logs are sold to third-party mills including manufacturers of lumber, plywood, pulp and paper products.


Among other segments, Real Estate segment comprises sale of better-use timberland and non-strategic timberland. It also operates a real estate development business.

The Manufacturing segment includes lumber mills, plywood plants, lumber-remanufacturing facilities and medium density fiberboard facilities. These facilities convert logs to lumber, plywood and other products and convert chips, sawdust and wood shavings to MDF.

Moreover, Plum Creek has the Energy and Natural Resources segment consisting of the natural resource businesses, which focus on opportunities for oil and natural gas production, rock and mineral extraction, wind power and communication and transportation rights. This segment was previously known as Other segment and effective fourth-quarter 2013, the company changed its name to maintain the transparency and comparability of its existing business segments.

Plum Creek's total revenue contribution by different product types in second-quarter 2014 is given below.


Plum Creek Timber Co. Inc. (PCL): Read the Full Research Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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