Is it Wise for Investors to Retain Rayonier (RYN) Stock Now?
Rayonier Inc. RYN is well-poised to benefit from its timberland portfolio in some of the most productive timber-growing regions of the United States South, the Pacific Northwest and New Zealand.
The lumber production and capacity in the U.S. South have grown substantially over the past few years. This positions Rayonier well to capitalize on the favorable trend, given that 73% of its Southern timberlands are located in the top quartile markets.
The company’s focus on unlocking the long-term value of its higher-and-better-use (HBU) development and rural property portfolio bodes well for the Real Estate segment’s growth. It has two unique HBU land portfolios, in proximity to I-95 north of Jacksonville, FL, and south of Savannah, GA, which provide long-term development opportunities.
The timberland real estate investment trust’s (REIT) business has significantly benefited from the recent developments in the field of biogenetics and cloning that have led to faster growth in trees, thus ensuring proper sizes for maximum extraction of wood.
Rayonier’s strategic acquisitions over the past few years to enhance the quality of its portfolio have been encouraging.
On the balance sheet front, the company exited the third quarter of 2023 with $107.8 million of cash and cash equivalents. Its current credit ratings of BBB- / Stable from S&P and Baa3 / Stable from Moody’s give it favorable access to the debt market.
This November, the company announced its capital structure realignment plan, through which it targets disposing of select assets totaling $1 billion over the next 18 months. This will enhance shareholder value and credit ratios, providing scope for greater capital allocation flexibility and improving CAD per share. It aims to maintain net debt to adjusted EBITDA within 3.0X compared with 4.5X targeted earlier.
Hence, Rayonier’s efforts to bolster balance sheet strength coupled with a well-laddered debt maturity profile and ample financial flexibility poise it well to capitalize on long-term growth opportunities.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for the company’s 2023 earnings per share indicates a favorable outlook as it has been raised 8.8% in the past month to 37 cents.
Shares of the company have gained 9.2% in the quarter-to-date period compared with the industry’s growth of 4.5%.
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However, Rayonier faces competition from various national and local players regarding a number of factors, including quality and price. Also, various substitute products, like non-wood and engineered wood products, are likely to hurt the demand for wood products, weighing on the company’s prospects.
Given a weaker export market demand, the company’s Pacific Northwest Timber segment is likely to remain in distress in the near term and witness a decline in pricing, hurting profitability. For 2023, we estimate a year-over-year decline of 17.5% in the segment’s revenues.
A major part of the company’s business is exposed to the foreign market, which makes its earnings susceptible to adverse foreign exchange fluctuations and the macroeconomic situation prevailing in the countries that import the timber. Particularly, the New Zealand Timber segment, which exports a large quantity of timber to China, is likely to be negatively impacted by the constrained demand in the Chinese market following the pandemic. For 2023, we estimate a year-over-year fall of 11.1% in the segment’s revenues.
Also, subdued residential construction activity due to a high interest rate environment is concerning. Rayonier may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate indicates a year-over-year increase of 34.7% in the company’s interest expenses this year.
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.69.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% upward over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
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