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Momentum

Rayonier Inc (RYN - Snapshot Report)
Could Rayonier be the best derivative play for the housing market recovery?

Company Description & Developments
There seems to be ever increasing chatter about the housing recovery.  2012 is supposed to be the year the housing not only stabilizes but begins to work its way higher.  Of course, folks have been saying this since 2009, but who’s counting?

The reality is that housing prices are still dropping, but they are dropping slower than they have been.  Inventories are also coming down along with supply.  Homebuilders have throttled back their production and taken some serious haircuts during the downturn.  Rents rates have gone through the roof and while condos and houses may still have vacancies, apartments are in demand and occupied. 

Something’s got to give - Cheap mortgage rates, modestly improving economic picture and cheap housing should be good kindling for a fire under the bum of the housing market.

Even Jim Cramer is jumping on the bandwagon, recently recommending Weyerhaeuser for the housing recovery. 

Like Weyerhaeuser, Rayonier is a REIT that sells wood products.  Slightly different is the way Rayonier business is split up into the following 3 categories:

(from their site)
Forest Resources
As one of the largest private landowners in the U.S., we own, lease or manage approximately 2.4 million acres of working forests in the U.S and New Zealand to supply timber to a wide variety of markets including pulp, paper, lumber, renewable energy production and other wood products.    

Performance Fibers
Rayonier produces two types of high-quality Performance Fibers: cellulose specialties – which are used in everything from filters and LCD screens to pharmaceuticals – and fluff pulp, which is used in disposable diapers and other absorbent products.    

Real Estate
At Rayonier, we evaluate each acre of our timberland to determine its greatest potential and highest and best use. In some cases, land that was once best suited for growing timber is now more valuable for residential, industrial, commercial or conservation use. Our real estate subsidiary provides added value by entitling or selling these properties.

Sometimes we need to look beyond just building houses and as a derivative of the housing recovery, RYN may be an interesting choice.

Financial Profile
As a solid mid-capper, Rayonier is trading a little over 20 times trailing earnings (P/E).  Generally REITs, which throw of the bulk of their profits in dividends, tend to carry a slightly higher P/E and that number also tends to be steadier.  Rayonier is expected to earn $2.12 in FY2011 according to the Zacks Consensus Estimate. 

As a Zacks Rank 1, Rayonier isn’t a slouch. In their last report Rayonier showed 38.31% year over year growth on about 217.58 million in net income. 

Currently, Rayonier is throwing off a quarterly dividend of $.40, with an annual yield of 3.56%.  Over the past 5 years, Rayonier has averaged 4.51 percent in dividend yield.

That’s not to say that the stock hasn’t had good price appreciate in addition to that income.  If Rayonier sees more income, you can bet that div will rise.  Over the past 10 years Rayonier shareholders have gotten an average of over 17% on their equity.

Earnings Estimates
Expectations are for Rayonier to make 49 cents this quarter when they report on January 24th.  Earnings estimates have fairly stable over the past two months.  90 days ago we had a small drop in consensus estimates, but in a housing market and an average global economy that is shaky, one might expect this.    

Rayonier surprised analysts to the upside by 31.48% last quarter, with an average upside surprise over the years of 13.84%

We did get one analyst downgrade his current quarter estimate, but at the same time increase next year’s estimates higher.  That makes logical sense to me, so we shouldn’t view it as a net negative.

Market Performance & Techincals
Rayonier is currently trading just under its 52 week high of $45.65.  Over the past year Rayonier has outpaced the S&P 500 by 18.78% and in the past 3 months alone has gained 7% against the index.

The last month or so has been good to this stock, with shares up $5 or 12.5 percent since December 14th, 2011. 

Rayonier is firming in a bulling ascending channel, and firmly above its 50 and 200 day moving averages, which is a bullish sign.  Volume has been dropping off as of late, so watch for lack of conviction here.  Look for $44 as support and perhaps a trigger for entry.

  
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Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

 

 

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