Plum Creek Timber Co. Inc. (PCL), Rayonier Inc. (RYN), Weyerhaeuser Company (WY): Pinocchio Does Not Play Soccer

Take me to the wild side

For how long will Weyerhaeuser Company (NYSE:WY) remain on the real state market? Contemplating a sale of its homebuilding division, announcing a new CEO from the timber business, and the recent purchase of 645,000 acres with high quality Douglas-fir indicate the firm is turning into a pure timber REIT business model.

With positive first quarter reports for 2013 – revenues up 33% – Weyerhaeuser Company (NYSE:WY) has continued to reward shareholders. Looking into the future, and pushed by a steady recovery of the housing market, the firm holds great prospects. Management continues to search for better efficiency ratios and a reduction of manufacturing costs. Attention has focused on less energy consumption and removal of incompetent facilities.

Weyerhaeuser also possesses fitting timber for the domestic and international market. Additionally, the firm holds timber for wood products expected to continue growing sale volumes aided by the housing market recovery. In consequence, the ‘fluff-pulp’ division will no longer be the leading division for the business model.

Financially, Weyerhaeuser’s standing has relatively improved, though. Revenue and net income have been on the rise, together with free cash. However, overall cash flow has been on the downside, not being able to close the gap with decreasing debt levels. Currently, at 31 times its earnings, a 46% premium to the 21.2 times industry average, the stock is widely overpriced. It is recommended to hold until price adjusts after internal restructuring.

Botton line

Demographic changes usually fuel long term changes. Events in the Southern US will only accentuate with time, driving demand for housing up. For this particular reason, this analyst prefers Rayonier for a long-term investment.

Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Pinocchio Does Not Play Soccer originally appeared on Fool.com and is written by Damian Illia.

Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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