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Potlatch Corp.

PCH

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Earnings estimates for Potlatch Corporation (PCH - Snapshot Report) hit a new 52-week high on Jan 17, as earnings estimates for 2012 and 2013 have each advanced in the double digits over the past 90 days. This Zacks Rank #1 (Strong Buy) REIT reported its third straight quarterly beat in October, and will be reporting again exactly one week from today.

With a robust return of 31.1% in a year’s time and a long-term expected earnings growth rate of 5.0%, this stock looks like a solid momentum pick.

Earnings Recap

Potlatch is scheduled to release its fourth-quarter 2012 earnings on Jan 29. The Zacks Consensus Estimate is currently pegged at 31 cents per share, compared to a loss of 2 cents a year earlier.

Third-quarter earnings of 46 cents per share outpaced the Zacks Consensus Estimate by 12.2%. The company has been experiencing better-than-anticipated demand for manufactured wood products over the past nine months.

Total consolidated revenues for the quarter came in at $151.9 million, down 0.6% year over year. Operating income moved down 18.9% to $28.8 million in the reported quarter. EBITDDA of $37.0 million was down 17.4%.

Earnings Momentum on an Upswing

Over the past 90 days, the Zacks Consensus Estimate for 2012 advanced 15.7% to $1.03. For 2013, the Zacks Consensus Estimate moved north by 14.2% to $1.29 over the same time frame. These estimates reflect year-over-year improvements of 0.3% for 2012 and 24.8% for 2013.

Premium Valuation

Potlatch currently trades at 33.0x 12-month forward earnings, a 16% premium to the peer group average of 28.5x. Its price to book ratio of 12.3 is at a significant premium to the peer group average of 3.8. Given its strong fundamentals, the premium valuation is justified.

Furthermore, the company has a trailing 12-month ROE of 20.5%, compared with the peer group average of 5.0%. This implies that the company reinvests its earnings more efficiently than its peer group.

Potlatch has witnessed strong price momentum since the third quarter earnings release. Moreover, the company has been continuously outperforming its 200-day moving average over the past six months. Over the past year, the return for the stock has been 31.1% compared with the S&P 500’s return of 13.0%.

Headquartered in Spokane, Washington, Potlatch Corporation is a Real Estate Investment Trust that is engaged in the ownership and management of timberland in Arkansas, Idaho and Minnesota. Founded in 1903, the company has a market cap of about $1.7 billion. AmREIT, Inc. (AMRE), Post Properties Inc. (PPS) and Redwood Trust, Inc. (RWT) are other Zacks #1 Rank stocks in the same industry.


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