Bullish on Weyerhaeuser

We recently upgraded Weyerhaeuser Company ( WY - Analyst Report ) from Neutral to an Outperform recommendation.

Why the Upgrade?

Weyerhaeuser is one of the leading U.S. forest product companies and has a market capitalization of roughly $15.9 billion. The company caters to a diverse clientele spread over the U.S., Canada, Japan, Europe, and other regions.

With constant efforts in improving its operating efficiency and reducing manufacturing costs, Weyerhaeuser has been successful to some extent in overcoming the ill-effects of the economic slowdown that hit its business badly. Balance sheet is stronger now with a cash and cash equivalent balance of $898 million. Also, initiatives are being taken to lower the debt level; for which approximately $400 million is likely to be spent on debt maturities in 2013.

Slow recovery in economic conditions is expected to improve the company’s export business in year 2013. Likewise, strengthening of the Canadian dollar and Euro will improve competitiveness of the company’s products while stimulus package in Japan would boost demand. Also, the Chinese market will remain an attractive export destination of the company’s products.

Further, the recent announcement of an increase in the company’s quarterly dividend rate is consistent with Weyerhaeuser’s policy of rewarding its shareholders. The quarterly rate has gone up by 3 cents or 18% from 17 cents to 20 cents per share. This rate also equates to annual dividend rate of 80 cents per share.

If we steal a look into the company’s financial results for the fourth quarter 2012, we find that $92 million was paid as dividends to shareholders during the quarter.

A similar revision was announced on Oct 11, 2012 when the quarterly rate was hiked 13% from 15 cents to 17 cents. Taking these two revisions into account, we find that Weyerhaeuser has grown its dividend rate by roughly 33% over the period.

Considering all the positives mentioned above, we hold a bullish stance on Weyerhaeuser.

Other Stocks to Consider:

Weyerhaeuser currently carries a Zacks Rank #1 (Strong Buy). Other stocks to watch out for in the industry are Louisiana-Pacific Corp. ( LPX - Snapshot Report ) , Potlatch Corp. ( PCH - Snapshot Report ) and Plum Creek Timber Co. Inc. ( PCL - Analyst Report ) , each with a Zacks Rank #1 (Strong Buy).