The lumber products industry knocks on wood
Strong demand from home and commerical construction is bringing some spring growth to timber companies.
By John Blank
Sitting last week back at number 192 on the Zack’s Industry Rank list, strong recent demand for building materials -- and upgrades to the earnings estimate revisions that followed-- have pushed key players in the timber industry back into the spotlight.
This week, the building products/wood industry now enjoys a Zack’s Industry Rank of 32.
Within the building products/wood industry list of eight companies, there have been five recent positive revisions to annual earnings estimates and zero negative revisions. Positive estimate revisions have been averaging +15%. Admittedly, there are also a couple of sour earnings surprises to report, too.
Construction benefits directly from strong home construction volumes and rapidly improving home prices. Industrial, retail and commercial demand for building products and wood has rebounded smartly as well.
Given the diverse sources in market demand for these products, there’s reason to believe demand trends will continue to provide positive revenue growth support and further upward earnings estimate revisions. More favorable activity by the sector’s analysts should follow.
Sudden upward Zacks Rank company movement within a group, moving from a hold to either a buy or strong buy rank, is important. It reflects fresh earnings estimate activity that a savvy investor can take advantage of. Glance over the brief descriptions of our two Q4 earnings surprise candidates. Each was selected based on its current Zacks Rank of number one, and the recent magnitude in positive earnings surprises.
Note: Q1-13 quarterly reporting arrives for both of these companies the third week of April.
Plum Creek Timber (PCL)
PCL is a Zacks Rank #1 (Strong Buy). It moved up from a hold just last week. This publicly-held timber REIT reports quarterly earnings on April 29, 2013. The lumber, plywood, and medium density fiberboard (MDF) producer offers an annual cash dividend of $1.68, which yields a nice 3.2% return, and showed us a recent +69% Q4 earnings beat. Plum Creek Timber is the second largest private timberland owner in the United States, with approximately 7.8 million acres of timberlands located in 19 states. Their timberlands are well diversified, not only by species mix but also by age distribution.
Weyerhaeuser Co. (WY)
WY is a Zacks Rank #1 (Strong Buy). It was bumped to its #1 rating within the last week. It reports its earnings on April 26, 2013. The producer surprised on its Q4 EPS with a +37% beat. Weyerhaeuser Company is principally engaged in growing and harvesting timber; the manufacture, distribution and sale of forest products; real estate development and construction and other real estate related activities. Its business segments are timberlands; wood products; pulp, paper and packaging; and real estate and related assets.
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Bill Stiritz owns more than 5% of the company, and has experienced an estimated $145 million in paper losses on his investment.
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