Weyerhaeuser’s Investment Value Weakens on Dicey Future

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weyerhaeuser logo 300x152zacks.com – We issued an updated research report on Weyerhaeuser Company (WY – Analyst Report) on Jul 1, 2015. The company is one of the leading U.S. forest product companies with operations primarily concentrated in Southern California, Nevada, Washington, Texas, Maryland and Virginia.

Management believes that gradual recovery in the U.S. housing market as well as timber supply shortage in Canada will boost demand for Weyerhaeuser’s Timberlands and Wood Products segments in 2015. Housing starts are expected to be approximately 1.1 million. Also, the company remains committed toward rewarding its shareholders through dividend payments and share buybacks. In the long run, the company aims to achieve a dividend payout of up to 75% of funds available for distribution.

However, notwithstanding these long-term growth prospects, Weyerhaeuser’s exposure to certain headwinds has weakened its investment value in the near term. International operations expose the company to risks related to unfavorable foreign currency movements and geopolitical issues. Any economic unrest in the foreign countries served by the company will negatively affect its businesses. In first-quarter 2015, weaker housing market in Japan and softer demand from China severely impacted the company’s Timberland business.

For second-quarter 2015, Weyerhaeuser anticipates sequentially lower earnings from its Timberlands segment due to lower realizations for Western logs and decline in earnings from disposition of non-strategic timberlands. Also, earnings from the Cellulose Fibers segment are anticipated to be sequentially lower as a result of reduced pulp sales realizations and higher maintenance expenses.

Weyerhaeuser, with a market capitalization of $16.6 billion, currently carries a Zacks Rank #5 (Strong Sell). The ranking is justified by near-term concerns surrounding the stock that led to downward revisions in earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for Weyerhaeuser has decreased 19.1% to $1.10 per share for 2015 and 6.9% to $1.61 for 2016.

Also, some of Weyerhaeuser’s prime competitors are performing well, having gained high Zacks investment rankings. Better-ranked stocks in the building products industry include Energy Focus, Inc. (EFOI – Snapshot Report), Rayonier Inc. (RYN – Snapshot Report) and The Home Depot, Inc. (HD – Analyst Report). While Energy Focus sports a Zacks Rank #1 (Strong Buy), both Rayonier and The Home Depot carry a Zacks Rank #2 (Buy).

Source: www.zacks.com