Seeking Alpha: Plum Creek's Value Finally Realized, But Weyerhaeuser Has Some Work To Do

I've been relatively bullish on Plum Creek Timber (NYSE:PCL) for a while, arguing (maybe stubbornly) that the shares were valued too cheaply in the public market relative to private market timberland transactions and the potential cash flow and value to be realized from timber and land sales as the U.S. housing market recovers.

It would seem that Weyerhaeuser (NYSE:WY) had at least a somewhat similar view of the situation, as the two companies have announced a merger that will see the two companies merge in an all-stock deal that will leave Weyerhaeuser shareholders with 65% of the combined company. Together, these two companies will own over 13 million acres of timberland, offering even more exposure to a housing recovery but also creating an opportunity for Weyerhaeuser to drive more value from Plum Creek's assets.

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Plum Creek's Value Finally Realized, But Weyerhaeuser Has Some Work To Do

Seeking Alpha: Plum Creek Timber Biding Its Time

Maybe the nicest thing I can say about Plum Creek Timber (NYSE:PCL) since my last update is that investors in this timberland REIT fared better than those invested in Weyerhaeuser (NYSE:WY), Potlatch (NASDAQ:PCH) or lumber/wood product producers like West Fraser (WFT.T) or Canfor (CFP.T). The basic underlying problem will be familiar to many investors - housing starts aren't recovering to the extent expected around the beginning of the year, Asian demand has been weaker than expected, and prices for Northwestern and Southern logs haven't improved as much as hoped.

If you've been interested in Plum Creek for some time, nothing has really changed. The bull thesis on Plum Creek centers around the idea that management can drive more value by intensive management of the timberland resources (better planting and harvesting decisions), sell higher-value properties, and leverage an eventual housing recovery. Bears can argue that Plum Creek doesn't have enough leverage to value-added manufacturing, that higher-value sales will disappoint, and that the slower/shallower housing recovery will limit price recovery.

I continue to believe that Plum Creek is likely undervalued on a long-term net asset value basis (which assumes "fair" prices well below prior peaks), but not so much so that this is a must-buy. I think this remains a credible stock for investors interested in income, but this is not the sort of situation where management excellence can neutralize an underwhelming operating environment.

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Plum Creek Timber Biding Its Time

Seeking Alpha: Softer Prices Leading To Underwhelming Results At Weyerhaeuser

Weyerhaeuser (NYSE:WY) and Plum Creek (NYSE:PCL) have yet to see the recovery in timber demand that they need to post compelling earnings and cash flow, and it shows in the stock performance. While both offer decent dividend yields, the shares of both companies are only up about 3% since I last wrote about Weyerhaeuser in August of 2014.

Weyerhaeuser has made good progress with its cost cutting initiatives, but timber and wood product prices just aren't cooperating at this point. Although the near-term earnings prospects for Weyerhaeuser don't argue for this being a must-own stock, I believe the underlying value is more compelling for patient investors.

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Softer Prices Leading To Underwhelming Results At Weyerhaeuser

Seeking Alpha: Plum Creek Timber Getting A Little More Respect

As Top Ideas go, my September 2013 call on Plum Creek Timber (NYSE:PCL) has been a dog. The stock is up from that initial report, but investors would have much better with Weyerhaeuser (NYSE:WY) or Potlatch (NASDAQ:PCH), let alone any number of stocks outside of the timber space. If there's a silver lining, it's that this dog has fewer fleas now, as the shares have rebounded more than 10% off the October 2014 low and continue to offer a decent yield.

This coming year is not likely to be dramatically better. Plum Creek's management is looking for growth in housing starts, but new household formation remains worryingly low and new opportunities like wood fuel pellets are not going to create major dislocations in the demand for pulpwood. On a more positive note, the public market valuations of companies like Plum Creek are starting to better reflect the value of timberlands indicated by actual transactions and management has expressed a willingness to sell non-core timberland at the higher private values and use the funds to repurchase shares below net asset value.

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Plum Creek Timber Getting A Little More Respect

Seeking Alpha: A New Rayonier, But The Same Old Problem

For the major publicly-traded timberland owners - a list that includes Rayonier (NYSE:RYN), Plum Creek (NYSE:PCL), Weyerhaeuser (NYSE:WY), Pope Resources (NASDAQ:POPE), and Potlatch (NASDAQ:PCH) - the frustrating wait for a housing-led recovery goes on. Although Rayonier does have a relative advantage to Plum Creek with its larger (as a percentage) weighting to the Pacific Northwest and its New Zealand joint venture, not to mention the absence of wood products operations, the company can do relatively little in the face of persistent weakness in stumpage prices and sluggish demand for HBU real estate. While I like Plum Creek as a play on an eventual recovery in timberland value, and Weyerhaeuser for its weighting to more valuable Pacific Northwest acreage and value-added wood products, the new post-spin off Rayonier just doesn't look like much of an opportunity at today's prices.

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A New Rayonier, But The Same Old Problem

Seeking Alpha: Weyerhaeuser's Asset Quality Held Back By A Sluggish Recovery

Now that Weyerhaeuser's (NYSE:WY) transaction with TRI Pointe Homes (NYSE:TPH) and subsequent tender offer are done, it's time for attention to move back to the core operations - high-quality timberland, a sizable wood products operation, and a "larger than you might think" cellulose pulp business. Weyerhaeuser's timber and wood products are going to generate the lion's share of shareholder value going forward and the company is well-placed in terms of asset quality.

In the meantime, though, a sluggish housing recovery in the U.S. and some challenges in key Asian markets are keeping the company from reaching its full potential. Plum Creek (NYSE:PCL) arguably offers more upside to a stronger recovery in timberland value and timber demand, but Weyerhaeuser's proven superiority in timber-based value generation and leverage to growth in engineered products suggests a better risk-reward tradeoff.

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Weyerhaeuser's Asset Quality Held Back By A Sluggish Recovery

Seeking Alpha: The Wait At Plum Creek Timber Stretches On

The housing recovery thesis has fractured this year, with some housing/construction names doing relatively well and others faring pretty poorly. For the timber companies (Weyerhaeuser (NYSE:WY), Rayonier (NYSE:RYN), Potlatch (NASDAQ:PCH), and Plum Creek (NYSE:PCL)), it hasn't been a great time as sawlog prices have yet to really recover and opportunities to sell land to real estate developers are still relatively limited. While it may be true that patience on Plum Creek will pay off and that management is making a good decision by reducing harvest levels over the near term, it's not going to encourage most investors to reconsider the shares today.

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The Wait At Plum Creek Timber Stretches On

Seeking Alpha: Plum Creek Timber Biding Time

The wait for Plum Creek Timber's (PCL) realization of value from its timber assets drags on. These shares bounced up for a little while after my Top Idea write-up in September 2013 ("Patient Investors Get A Crack At Plum Creek Timber"), but declined sharply on the announcement of the acquisition of MeadWestvaco's (MWV) timberland and the concomitant equity offering. Matters were helped little when the company followed that up in January of 2014 with a weak guide for 2014 EPS on lower land sales.

Plum Creek shares have long traded at premiums to Weyerhaeuser (WY) and Rayonier (RYN) (at least on an EBITDA basis), but investors seem to be tiring of the wait for a sustained recovery in housing construction and demand for sawlogs in the southern U.S. For what small consolation it offers, it doesn't appear that Plum Creek's issues are all company-centric, as Rayonier and Potlatch (PCH) have declined by similar amounts since September and Weyerhaeuser is also in the red for that period.

I remain bullish on the long-term value of these shares, but I realize that a "be patient, it gets better" call is not the most compelling call to make, particularly with the shares trading around 19x 2014 EBITDA. A clean 2014, with higher harvest volumes and better prices, would be welcome, but patient investors can still find a lot of value in the company's substantial timberland holdings, real estate development potential, and possible biomass energy play.

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Plum Creek Timber Biding Time

Seeking Alpha: Rayonier Switching It Up As Its Prospects Diverge

Just as some companies manage to build value through acquisitions where "1+1" equals more than two, investors apparently think that the two major halves of Rayonier (RYN) are worth more apart than together. Seeing as how there really never were the hoped-for synergies between the company's timber assets and its Performance Fibers business, the split likely won't do either much harm, and it does give investors the opportunity to invest in a much "purer" timber REIT after the split is finalized.

Together or apart, I think Rayonier is worth about $46 to $47 today on a sum-of-the-parts basis. With an EV/EBITDA approach using next year's expected EBITDA showing a fair value of only about $35, it's clear to me that much of the value proposition here depends upon a housing recovery in the U.S. driving improved demand for timber and higher valuations for timberlands. Assuming that debt would be apportioned proportionately (and factoring in some asynergies from duplicated corporate expenses), I would estimate that about one-third of the stock's value can be attributed to the Performance Fibers business today.

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Rayonier Switching It Up As Its Prospects Diverge

Seeking Alpha: Patient Investors Get A Crack At Plum Creek Timber

Timberland investing has become one of the more popular "open secrets" of institutional investing - numerous papers have been published comparing the long-term value and performance of investments in timberland to other asset classes, and timberland has often come out looking quite good. Not surprisingly, that has led to institutional dollars flowing into the asset class, leading to quite a bit of volatility in the price (or value) per acre of this class of real estate.

While investing in timberland itself is not very easy for the average investor, REITs like Plum Creek Timber (PCL) offer an appealing alternative. While Plum Creek (and comparables including Weyerhaeuser (WY), Rayonier (RYN), Deltic (DEL), and Potlatch (PCH)) are not pure plays on timber (many of them produce wood-based products and/or sell off lands for real estate development), they're as close as most investors will find, and the popularity of timber as an asset class has generally kept these shares well-valued.

Financial writers often talk about "waiting for a pullback" before buying a stock, and Plum Creek looks like it's offering just that sort of opportunity. With U.S. housing and real estate on the mend (albeit slowly), more lumber going to China, and new opportunities for wood like fuel pellets, Plum Creek's long-term value looks solid. Even so, the shares are down sharply from the May 2013 high and flat for the year. Assigning an objective fair value to Plum Creek may be like nailing Jell-O to a tree, but I would argue that the shares are worth at least $54 today which, in combination with a nearly 4% dividend yield, makes this a stock worth consideration today.

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Patient Investors Get A Crack At Plum Creek Timber

Investopedia: Rayonier Not Really An Income Play On A Housing Recovery

Inexperienced income investors often see the word “REIT” and think it's a sure ticket to good income growth. That's not always the case, though, and Rayonier (NYSE:RYN) is case in point. Although I do believe Rayonier will see improving demand for the output of its timberlands, not all of the company's earnings are shielded by its REIT status and investors may well find that the market has already more than anticipated the business improvements to come from the housing recovery.

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http://www.investopedia.com/stock-analysis/070313/rayonier-not-really-income-play-housing-recovery-ryn-wy-pcl-pch-bki.aspx

Investopedia: Weyerhaeuser Has A Busy Father's Day

Weyerhaeuser (NYSE:WY) didn't have the luxury of taking it easy on Father's Day, as the company announced a slew of transactions that could significantly reshape this large timberland and wood products REIT. On balance, the transactions should increase (or at least unlock) value within the company, and the naming of a high-quality CEO should have the company in good shape to take advantage of the slowly building housing recovery. Although Weyerhaeuser is not shockingly cheap, it still looks like a quality name to consider.

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http://www.investopedia.com/stock-analysis/061713/weyerhaeuser-has-busy-fathers-day-wy-pcl-bam-phm.aspx

Investopedia: The Market Has Priced In Weyerhaeuser's Recovery

Wall Street spent much of 2012 buying into the housing recovery. From wood products companies such as Louisiana-Pacific (NYSE:LPX) (up 135%), to home builders such as PulteGroup (NYSE:PHM) (up 179%), to furnishings/fixtures manufacturers such as Masco (NYSE:MAS) (up 52%), quite a number of stocks tied to residential housing had significant recovery rallies in 2012. So, too, did Weyerhaeuser (NYSE:WY), a well-run company that includes timberland, wood products and real estate investment trusts. While timberland is likely to remain a high-quality long-term asset, and Weyerhaeuser is one of the better operators in the public market, new investors should probably wait for a pullback.

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http://www.investopedia.com/stock-analysis/2013/The-Market-Has-Priced-In-Weyerhaeusers-Recovery-WY-PCL-RYN-LPX0130.aspx

Investopedia: Louisiana-Pacific, Like Housing, Coming Back To Life

Residential housing construction is coming back to life. Although progress has been unsteady and comes off of an unsustainably weak base, demand is improving and Louisiana-Pacific (NYSE:LPX) is seeing the benefits. The stock has already roared back from its going-out-of-business-sale price, but these shares could continue to appreciate if Congress can avert the fiscal cliff and if other building material companies remain rational and prudent with their capacities and pricing.

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http://www.investopedia.com/stock-analysis/2012/Louisiana-Pacific-Like-Housing-Coming-Back-To-Life-LPX-WY-PCL-AWI1108.aspx

Commodity HQ: Stocks To Buy For Hyperinflation

With the Federal Reserve firing up the presses for a third round of quantitative easing, it’s only a matter of time before more talk of imminent hyperinflation pops up. While calm discussions on the prospects of hyperinflation are rare (and there’s often a tinge of hysteria or paranoia around the topic), the reality is that the U.S. does have some disturbing trends working against it in terms of demographics, debt/deficits, and a policy of easy money that debases the fiat currency.



What’s more, thumbing through the history books shows that periods of extreme inflation or hyperinflation (definitions vary) are not all that uncommon around the world. Post-World War I Germany is probably the most oft-cited example, but a range of countries including Greece, Russia, Argentina, China, Brazil, and Zimbabwe (most recently) have seen stretches of inflation severe enough to call it hyperinflation.

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http://commodityhq.com/2012/how-to-prepare-yourself-for-hyperinflation/

Investopedia: At Plum Creek Timber, It's Still A Waiting Game

Certain stocks just stubbornly retain value through good times and bad times - even if that means occasional periods where results aren't so good and the valuation looks too high. That's great if you're a long-term holder who already owns shares, but it can be frustrating if you're on the outside waiting for a good time to buy shares. Conditions have yet to really improve for Plum Creek Timber (NYSE:PCL), but valuation still doesn't offer much of a bargain for new investors.

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Investopedia: Better Volumes, But Not Better Value, At Plum Creek

There's a certain amount of "broken record" when it comes to talking about Plum Creek Timber (NYSE:PCL). Conditions in the housing market, and by extension the forestry market, haven't changed all that much, but neither has the Street's overall confidence that patience here will pay off. While valuation and potential liquidity challenges don't argue for this stock as a must-own, investors are likely to remain firm in their conviction that better days will validate the premium on these shares.

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Investopedia: Brookfield Infrastructure An Interesting Play On Long-Term Assets

A few weeks ago, I ran through some of the merits of Brookfield Asset Management (NYSE:BAM) - a relatively unusual investment vehicle that gives investors exposure to a wide range of investment assets, such as commercial real estate and infrastructure assets. Now it's time to consider one of the major holdings of BAM - Brookfield Infrastructure Partners (NYSE:BIP).

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http://stocks.investopedia.com/stock-analysis/2012/Brookfield-Infastructure-An-Interesting-Play-On-Long-Term-Assets-BIP-PCL-BAM-BHP0531.aspx

Investopedia: Weyerhaeuser Like Watching The Grass Grow

Nobody ever said that owning Weyerhaeuser (NYSE:WY) was going to be exciting, but that's the nature of owning a company focused on timberland and wood-derived products. This is a company where value can accrete slowly by virtue of the company's timber assets, sweetened by growing exports to Asia and an eventual recovery in the U.S. housing market.

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http://stocks.investopedia.com/stock-analysis/2012/Weyerhaeuser-Like-Watching-The-Grass-Grow-WY-PCL-RYN-LPX0430.aspx

Investopedia: Weyerhaeuser Already Anticipating The Turn

Maybe, just maybe, there are finally some signs of life in the U.S. residential construction market. Companies like Illinois Tool Works (NYSE:ITW) have seen some inklings of recovery and investors are slowly getting more optimistic. Be that as it may, though, shares in Weyerhaeuser (NYSE:WY) have already jumped more than 25% in the past couple of months on this improving outlook and that has taken a lot of the undervaluation out of the stock.

A Surprisingly Strong Fourth Quarter
Weyerhaeuser's fourth quarter results were actually pretty positive in a lot of respects. Total revenue did drop 3% from last year and about 2% from the prior quarter, but they nevertheless came in a little better than expected. Although the large wood products segment saw revenue fall 14% sequentially, cellulose fiber, real estate and timberlands were all up sequentially.


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http://stocks.investopedia.com/stock-analysis/2012/Weyerhaeuser-Already-Anticipating-The-Turn-WY-PCL-RYN-PCH-PG0208.aspx