Solid Timberland Performance To Aid Rayonier's (RYN) Growth

Rayonier’s (NYSE:RYN) portfolio of timberlands reflects a geographical diversity and is likely to benefit from developments in biogenetics & cloning that boost growth of trees. The company has also upgraded its U.S. South portfolio through strategic acquisitions and is expected to gain from the recovery of nation’s housing sector. However, Rayonier faces competition from its substitutes and other market players in the timberland sector.

In February, the company reported its fourth-quarter 2017 proforma net income per share of 20 cents, comfortably beating the Zacks Consensus Estimate of 9 cents. Further, the bottom line was significantly above the prior-year quarter figure of 5 cents. Results reflected solid performance of Pacific Northwest, New Zealand Timber and the Real Estate segments, on account of higher harvest volumes and increase in saw-timber prices. However, performance in the corporate segment was disappointing.

Notably, Rayonier owns or leases around 2.6 million acres of timberlands in some of the most productive timber-growing regions of the U.S. South, Pacific Northwest and New Zealand. Further, the timberlands are strategically located near the pulpwood consuming mills which manufacture products for the growing end-markets. In addition to this, rising demand from pellet manufacturers, mainly in Texas and Georgia, are aiding the REIT. Importantly, the company enjoys favorable demand-supply dynamics and because of the improving performance in the Pacific Northwest and New Zealand timber segment, Rayonier is likely to enjoy better pricing power.

Moreover, recent developments in the field of biogenetics and cloning have provided a tremendous impetus to the timberland REIT’s business. Application of biogenetics leads to fast growth in trees, ensuring proper size for maximum extraction of wood.

Also, amid an active timberland market, Rayonier made acquisitions of industrial timberlands worth $242.9 million during 2017. These acquisitions have upgraded the company’s U.S. South and Pacific Northwest portfolio and placed it well to benefit from the ongoing U.S. housing recovery.

The company constantly strives for finding alternative utilization of the timberlands for higher and better uses (HBU). In fact, there are many attractive HBU opportunities across the U.S. South, mainly along the Florida and Georgia coastal corridor. The REIT aims at continuously monetizing HBU properties through rural land sales for raising the value of its portfolio.

Additionally, shares of this Zacks Rank #2 (Buy) company have outperformed its industry in the past three months. During this time frame, the stock has gained 11.2%, while the industry moved 0.1% south.

Nevertheless, Rayonier faces cut-throat competition in the market from national and local players, regarding a number of factors, including quality and price. Additionally, wood products, in general, encounter increasing rivalry from a variety of substitutes like non-wood and engineered-wood products.

Other Stocks Worth a Look

A few other top-ranked stocks in the same industry include Boise Cascade, L.L.C. (NYSE:BCC) , Louisiana-Pacific Corporation (NYSE:LPX) and Potlatch Corporation (NASDAQ:PCH) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade’s earnings estimates for 2018 have been revised 17.6% upward to $2.61 over the past month. Its share price has risen 2.8% in three months’ time.

Louisiana-Pacific’s earnings per share estimates for the current year have moved up 27.4% to $2.65 in a month’s time. Its shares have gained 5.8% over the past three months.

Potlatch’s earnings per share estimates for 2018 were revised upward marginally to $2.98 over the past month. The stock has gained 1.1% during the past three months.

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