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Neutral on Plum Creek Timber

Zacks Equity Research

On Nov 20, 2013, we reiterated our long-term Neutral recommendation on Plum Creek Timber Company Inc. (PCL). This is based on the company’s strong third-quarter performance, and diversified timber and recent southern timberlands acquisition. Yet stiff competition and declining harvest volumes are plausible concerns.

Why the Reiteration?

Aided by notable performances across all business segments, especially southern resources, real estate and manufacturing, Plum Creek’s third-quarter 2013 earnings per share of 44 cents, surpassed the Zacks Consensus Estimate by 2 cents and the year-ago quarter figure by 8 cents. Particularly, rising demand of wood products stemming from a recovery in the residential construction market benefited this leading publicly-held timber real estate investment trust (:REIT).

Plum Creek has around 6.3 million acres of timberland in the major timber producing regions and wood products manufacturing facilities in the Northwest. This enables the company to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing.

Also, the improvement in demographic trends, resulting in an uptick in housing markets and demand for real estate properties across the nation provides a strong economic backdrop for the company to demonstrate a solid financial performance in the future.

The recent acquisition of Southern Timberlands worth $1.1 billion is a quality addition to Plum Creek’s portfolio in this respect. Notably, with the advancement of the residential construction market in the southern region, management expects sawlog demand to rise on the back of improving production of lumber and structural panels.

Yet, we expect cyclical nature of the business, cut-throat competition and stringent environmental regulations to limit the company’s long-term growth to some extent. Also, the currently declining total harvest volume might limit any robust top line expansion going forward.

Consequently, over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at $1.36 per share. For 2014, the Zacks Consensus Estimate dipped by 2.4% to $1.61 per share. Hence, Plum Creek currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked REITs include Public Storage (PSA), Ramco-Gershenson Properties Trust (RPT) and American Assets, Inc. (AAT). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on PCL
Read the Full Research Report on PSA
Read the Full Research Report on AAT
Read the Full Research Report on RPT

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