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Weyerhaeuser Rides on Mergers & Shareholder-Friendly Moves

Zacks Equity Research
The line-up of luxury brands after the expansion of Toronto Premium Outlets will help Simon Property Group (SPG) bank on the improving spending habits of wealthier customers amid progressing economy.

Weyerhaeuser Company WY is likely to gain from strong U.S. housing market. Beside rewarding its shareholders handsomely, the company is focused on enhancing inorganic policies and operational excellence, which should continue to drive growth.

In the past 60 days, the Zacks Consensus Estimate for current-quarter earnings increased 5.3%, while that for the current year surged 2.6%, reflecting analysts’ optimism surrounding the company’s future earnings potential.

Let’s delve deeper into factors that support Weyerhaeuser’s growth.

Strengths in Housing Market: Steady job and wage growth, recovering economy, favorable builder sentiment, rising household formation and limited supply of inventory are strengthening the housing market. The company is expected to reap benefits from current market conditions in the United States.

Total housing starts, seasonally adjusted on annual basis, reflect year-over-year improvement of nearly 8% as of June 2018. Single-family starts grew more than 8%. Notably, the company expects single-family housing starts to grow 10% in 2018.

Inorganic & Operational Excellence: Weyerhaeuser took a number of initiatives, including boosting its core timber, land and forest products business that supported the company’s inorganic growth during 2013-2017. The acquisition of Plum Creek Timber in February 2016 helped the company to leverage on improving housing market conditions in the United States while developing, and offering better products and services to customers.

Meanwhile, Weyerhaeuser is highly focused on its operational excellence, that includes merchandising for values, harvesting transportation operations, reducing road cost, optimizing forestry spending and maximizing revenues from every log Weyerhaeuser harvest. These initiatives yielded benefits of $327 million from its Wood Products segment and $172 million from its Timberlands segment between 2014 and 2017.

Further, operational excellence improvement of $5-$10 million in oriented strand board, $20-$25 million in lumber, $10-$15 million in engineered wood products and $5-$10 million in distribution are predicted to be realized from the Wood Products segment in 2018.

Strong Shareholder Moves: Weyerhaeuser is committed to rewarding shareholders through dividend payments and share buybacks. As of Jun 30, 2018, the company paid 4.1% higher dividend than the previous year, driven by 3% increase in its quarterly dividend. It aims at achieving 85% of payout in near future.

Valuation Looks Encouraging: Weyerhaeuser currently has a trailing 12-month Price-to-Book (P/B) ratio of 2.7, lower than its high of 3.2 and median of 3 scaled over the past year. This shows that the stock has enough upside potential left. On the contrary, the industry’s P/B ratio stands at 2.8.

Moreover, per the VGM Score, which identifies most attractive value, growth and momentum characteristics, Weyerhaeuser has a Score of B, indicating that the stock is most likely to outperform.

Zacks Rank & Other Stocks to Consider

Weyerhaeuser currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the Zacks Wood industry are Armstrong Flooring, Inc. AFI, Trex Company, Inc. TREX and PotlatchDeltic Corporation PCH, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Armstrong Flooring’s 2018 earnings are expected to grow 104.8%.

Trex’s current-year earnings are likely to increase 48.7%.

PotlatchDeltic’s current-year earnings are expected to grow 26.7%.

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