We recently downgraded
) from Outperform to a Neutral recommendation, anticipating that
the company will perform in line with the broader market.
Why the Downgrade?
Weyerhaeuser is a well renowned forest products company with a
huge timberland asset. It serves a diverse clientele spread
across the U.S., Canada, Japan, Europe, and other regions. The
company currently provides a solid year-to-date return of 33%.
Over time, the company has solidified its timberland assets and
is all set to further expand with the addition of Longview Timber
LLC to its portfolio. The company's total ownership of the U.S.
timberlands post the acquisition will likely reach 6.6 million
Also, serious efforts are being made to improve operating
efficiencies and reduce costs. To meet the end, non-performing
assets are being disposed of to free resources for more
productive use. Weyerhaeuser anticipates generating sequentially
higher earnings from disposition of non-strategic timberlands in
the second quarter. Of late, the company has initiated search for
suitable alternatives for its homebuilding and real estate
Apart from these, the recent increase of 18% in quarterly
dividend rate points toward the company's healthy balance sheet
and strong cash position. For 2013, management looks forward to
better operating conditions as demand from major export
destinations are expected to surge.
Despite all these positives, we have downgraded the
recommendation on Weyerhaeuser to Neutral, presuming that these
positives have already been discounted in the share price. This
leaves little room for further expansion. Further, risks arising
from stiff competition, exposure to currency translation and
geopolitical issues cannot be completely ignored.
Other Stocks to Consider:
Weyerhaeuser currently has a market capitalization of $15.7
billion. Other stocks to watch out for in the industry are
LOUISIANA PAC (LPX): Free Stock Analysis
POTLATCH CORP (PCH): Free Stock Analysis
RAYONIER INC (RYN): Free Stock Analysis
WEYERHAEUSER CO (WY): Free Stock Analysis
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