Weyerhaeuser's (WY) Growth Prospects Offset By Headwinds

We issued an updated research report on Weyerhaeuser Company (NYSE:WY) on Oct 6, 2016. The company grows and harvests trees, builds homes and manufactures forest products worldwide, primarily to be used as lumber and other wood and building products.

Weyerhaeuser has strong fundamentals supporting growth. However, exposure to near-term headwinds is restricting its growth momentum. Below we discuss the company’s tailwinds and headwinds.

We believe Weyerhaeuser is well-positioned to leverage benefits from the gradually improving housing market in the U.S. (housing starts expected to be over 1.2 million in 2016) as well as develop and offer better products and services to its customers. Also, the company offers its products to a wide clientele in the U.S., Canada, Japan, Europe and other regions. In addition, the company has initiated certain cost-control measures that are likely to bring in benefits of $30−$50 million in the Timberland segment while of $55−$75 million in the Wood Products segment. We believe improved profitability will help Weyerhaeuser reward its shareholders handsomely through dividends and share buybacks.

To concentrate on its core timber, land, and forest products business, Weyerhaeuser has taken some strategic decisions. Recently, the company agreed to sell its printing papers company, North Pacific Paper Company to One Rock Capital Partners. In Aug 2016, the company divested its liquid packaging board business to Nippon Paper Industries Co., Ltd. for approximately $225 million while in May, it had agreed to sell its Cellulose Fibers pulp mills for approximately $2.2 billion in cash to International Paper Company (NYSE:IP) . In Jun 2016, Weyerhaeuser announced its decision to permanently shut down its lumber and plywood mill in Columbia Falls, MT.

However, despite these positives, Weyerhaeuser’s growth prospects are impaired due presence of headwinds. International operations have exposed the company to risks related to unfavorable foreign currency movements and geopolitical issues. Also, any economic unrest in the foreign countries served by the company will negatively affect its businesses. At the same time, the company faces threats from higher expenses, huge debt levels and stiff competition from other players in the industry. Prime rivals include Louisiana-Pacific Corp. (NYSE:LPX) and Rayonier Inc. (NYSE:RYN) .

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