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Neutral Rec Maintained on Weyerhaeuser

Zacks Equity Research

We currently maintain a Neutral recommendation on Weyerhaeuser Company (WY), a well renowned forest products company, anticipating its performance to be in line with the broader market.

Why Neutral?

Weyerhaeuser provides a solid year-to-date return of 12.5% and also growth prospects are bright for the years to come. For 2013, management anticipates export demand to grow while housing market recovery continues to play a key role in the U.S. Earnings from disposition of non-strategic timberlands are expected to increase further.

The company’s huge asset base was further strengthened with the addition of Longview Timber LLC’s assets. The acquisition added 645,000 acres of timberlands in Weyerhaeuser’s asset base in Washington and Oregon. This has increased the company’s timberland assets in Pacific Northwest to 2.6 million acres, reflecting an increase of 33% while its total ownership of U.S. timberlands has reached roughly 6.6 million acres.

Also, serious efforts are being made to improve operating efficiencies and reduce costs. Non-performing assets are being disposed of to free resources for more productive use. Of late, the company has initiated search for suitable alternatives for its homebuilding and real estate company, WRECO. Apart from these, the recent increase of 10% in quarterly dividend rate points toward the company’s healthy balance sheet and strong cash position.

Despite all these positives, we prefer to remain on the sidelines on Weyerhaeuser, 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 $16.7 billion. Other stocks to watch out for in the industry are Boise Cascade Co. (BCC), Louisiana-Pacific Corp. (LPX) and Potlatch Corp. (PCH).

Read the Full Research Report on WYRead the Full Research Report on BCCRead the Full Research Report on LPXRead the Full Research Report on PCHZacks Investment Research