Weyerhaeuser Company (WY) manufactures and sells forest products. The company operates through three main business segments—timberlands, wood products, and real estate, energy & natural resources. Its wood products segment delivers lumber, structural panels, engineered wood products and complementary building products for residential, industrial and light commercial applications.
Rayonier Inc. (RYN) is a leading timberland real estate investment trust with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. The company operates through seven segments—Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate, Trading, Corporate and Other.
The U.S. lumber market has been witnessing a soaring demand since the economy began recovering. Given low inventories, rising demand from industrial and residential activities has caused lumber prices to spike on April 19 to an all-time high of $1,328.50 per thousand board feet. The booming housing market, the country’s anticipated infrastructure developments and home improvement trends should keep driving lumber prices. Indeed, the global reclaimed lumber market size is expected to grow at a 4.6% CAGR to reach $70.37 billion by 2028.
WY has gained 27.1% over the past three months and RYN surged 18.4%. In terms of their past year’s performance, WY’s 77.3% makes it a clear winner, given RYN’s 39.8% gains. But, which of these stocks is a better pick now? Let’s find out.
On April 30, WY completed the acquisition of 69,200 acres of high-quality Alabama timberlands from Soterra, a subsidiary of Greif, Inc. (GEF), for approximately $149 million. It also announced the sale of 145,000 acres of timberlands in the North Cascades region to Hampton Resources for $266 million. The company expects to recognize a gain on the sale and anticipates no tax liability in connection with the transaction. In March, WY paid a $0.17 per share dividend. RYN paid a $0.27 per share quarterly cash dividend on March 31, 2021. Earlier in March, the company published its first Carbon Report that highlighted the positive net carbon impact generated by its forestry operations. In 2019, its timberland assets sequestered an estimated 5.7 million metric tons of CO2 equivalents from the atmosphere. This shows the company’s commitment to achieving net zero emissions globally.
Recent Financial Results
WY’s net sales for its fiscal year 2021 first quarter, ended March 31, increased more than 45% year-over-year to $2.51 billion. Its gross margin came in at $1.08 billion, which represents a 211% rise year-over-year. Its $956 million in operating income represents a 298.3% rise from the prior-year period. WY’s net income was $681 million, up 354% from the year-ago period. Also, its EPS increased 355% year-over-year to $0.91.
Its net cash from operations was $698 million, up 711.6% year-over-year. Its total liabilities and equity have decreased 2.1% year-over-year to $16.87 million. It had $1.02 billion in cash and cash equivalents as of March 31.
RYN is scheduled to release its fiscal year 2021 first quarter results on May 4, after the market closes. For the fourth quarter ended December 31, 2020, RYN’s pro-forma net sales rose 9.8% year-over-year to $196.30 million. Its pro-forma operating income came in at $22.40 million in the fourth quarter, down 14.2% year-over-year. However, its net income decreased 35.6% year-over-year to $10.30 million, and its pro-forma EPS decreased 33.4% year-over-year to $0.14.
Its total liabilities and equity have increased 30.3% year-over-year to $3.73 million. It had $87.50 million in cash and cash equivalents as of December 31, 2020.
Past and Expected Financial Performance
WY’s EBITDA and net income grew at CAGRs of 1.9% and 11.1%, respectively, over the past three years. The CAGR of the company’s EPS has been 11.5% over the past three years.
Analysts expect WY’s revenue to increase 47.8% in the current quarter (ending June 30, 2021), 19.4% in the current year, but decline 13.7% next year. Its EPS is expected to grow 663.6% in the current quarter, 89.9% in the current year, but decline 50.2% in the next year. WY’s EPS is expected to grow at a rate of 5% per annum over the next five years.
In comparison, RYN’s EBITDA and net income fell at CAGRs of 6.8% and 37.5%, respectively, over the past three years. The CAGR of the company’s EPS has been negative over the past three years.
Analysts expect RYN’s revenue to increase 3.2% in the quarter ending June 30 but decline 3% in the current year and more than 1% next year. Also, its EPS is expected to decline 27.3% in the current quarter, but then rise 56% in the current year and 5.1% next year. Furthermore, its EPS is expected to grow at a rate of 5% per annum over the next five years.
WY’s trailing-12-month revenue is 8.8 times RYN’s. WY is also more profitable, with a 27.7% gross profit margin versus RYN’s 18.9%.
Also, WY’s 9.4% ROE and 6% ROA compare favorably with RYN’s 1.7% ROE and 2.1% ROA.
In terms of forward non-GAAP P/E, RYN is currently trading at 91.3x, 436.4% higher than WY, which is currently trading at 17.02x. Also, in terms of forward EV/sales, RYN’s 8.34x is 113.8% higher than WY’s 3.90x. And WY’s 11.05x forward EV/EBITDA is significantly lower than RYN’s 25.52x.
Thus, WY looks more affordable here.
While RYN has an overall D rating, which translates to Sell in our proprietary POWR Ratings system, WY has an overall B rating, which equates to a Buy. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
Both WY and RYN have a C Momentum Grade due to their mixed price performance. However, WY has a B grade for Sentiment, which is consistent with analysts’ expectations that its revenue and EPS will increase. But RYN’s C grade for Sentiment reflects analysts’ low EPS and revenue growth expectations.
Also, in terms of Growth Grade, WY has been graded a B, given its impressive EBITDA and EPS rise over the past three years. In comparison, RYN’s F Growth Grade signifies its poor performance over the past three years.
Beyond what we’ve stated above, our POWR Ratings system has also rated WY and RYN for Value, Stability, and Quality. Get all WY ratings here. Also, click here to see the additional POWR Ratings for RYN.
We believe that WY and RYN are well-positioned to capitalize on the industry’s tailwinds given the high demand for lumber from rising industrial and residential activities. However, WY appears to be a better buy based on its growth potential and lower valuation.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the REITs – Diversified industry and here for those in the REITs – Industrial industry.
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WY shares were trading at $38.87 per share on Friday afternoon, down $0.77 (-1.94%). Year-to-date, WY has gained 16.52%, versus a 11.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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