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On Aug 22, 2013, we reaffirmed our long-term recommendation on Plum Creek Timber Company Inc. (PCL - Analyst Report) at Neutral. This is based on the company’s diversified timber and land base and rising demand for wood products stemming from resurgence in the residential construction market. However, stiff competition and declining harvest volumes are plausible concerns.

Why Neutral?

This leading publicly-held timber real estate investment trust (REIT) reported decent second-quarter 2013 results. The company’s earnings per share reached 28 cents, beating the Zacks Consensus Estimate of 23 cents and coming well above the year–ago quarter figure of 22 cents. Results were aided by impressive performance in all the segments of Plum Creek.

The company owns the largest and most geographically diversified private timberland in the U.S, with around 6.3 million acres of timberlandin the major timber producing regions and wood products manufacturing facilities in the Northwest. This enables the company to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing.

Moreover, with the rebound in the residential construction market, management expects rise in sawlog prices and demand, aided by improving production trends for lumber and structural panels. This augurs well for Plum Creek’s growth, going forward.

Thus, with decent quarterly results and strong fundamentals, Plum Creek is well poised to remain on the growth trajectory and simultaneously benefit shareholders with steadily rising dividends. Yet, we expect declining total harvest volume, cyclical nature of the business, cut-throat competition and stringent environmental regulations to limit the company’s long-term growth to some extent.

Consequently, over the last 30 days, the Zacks Consensus Estimate for 2013 moved up a penny to $1.36 per share. For 2014, the Zacks Consensus Estimate moved north by 2 cents to $1.66 per share. Hence, Plum Creek currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

REITs that are performing well include Glimcher Realty Trust (GRT - Snapshot Report), Ramco-Gershenson Properties Trust (RPT - Snapshot Report) and American Assets, Inc. (AAT - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).                               

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