Bull of the Day: Plum Creek Timber: (PCL)


April 16, 2013 |

For many years, housing was a huge drag on the economy, acting as a dark cloud over the broad market. No more is this the case though, as many believe the housing market is back on track, at least evidenced by recent price action and reasonably strong data.

Prices are higher in many markets, while there is actually some optimism over the future in this critical corner of the economy. And with low mortgage rates, steady unemployment, and strong consumer confidence, many believe this trend can continue.

Obviously, this has been great news for homebuilders and mortgage companies, but it has also helped firms that provide resources for home construction, such as timber. Companies that dominate this space have largely flown under the radar—when compared to their homebuilding cousins—but are largely exposed to the same market forces, and have been big winners thanks to the resurgence in housing as well.

One company that occupies this space—and a huge beneficiary of the trend—is Plum Creek Timber Company (PCL). The firm is the second largest private timberland owner in the U.S. and thus often takes its cues from the overall housing market.  

This has been great news as of late, as PCL has added about 25% over the past year, and about 14% so far in 2013. Many believe that this trend can certainly continue, especially if housing keeps improving as we get further into Q2.

Estimate Trend

Analysts are also fans of this scenario, as their expectations for the coming quarter have been broadly moving higher. In fact, analysts now expect the firm to earn 32 cents per share this quarter up from 28 cents per share 90 days ago, while the current year estimate has moved up from $1.35 a share to $1.40 a share over the same time period.

This means that analysts are now expecting year-over-year growth of roughly 77% for this quarter, and 50% for the next quarter. Add this onto to predictions of double digit earnings growth for this full year and the next, and investors have a quickly growing company producing an extremely in-demand product.

This has helped to push PCL to a Zacks Rank of 1 or ‘Strong Buy’, suggesting further outperformance in the near term. If that wasn’t enough, the industry is also highly Ranked, just inside the top 13% overall in fact.

Investors should also note that the company has shown a decent history of beating estimates at earnings season, so this quarter may be similar. Two of the last three quarters have shown double digit percentage beats, while the past four quarters average out to a 23% beat.

Other Factors

Clearly, the company has favorable earnings trends and a strong industry behind it. But, the company also sports a huge dividend which could further add to the bullish case for this stock.

PCL actually pays out over 3.2% on an annual basis, a figure that easily crushes broad market payouts. So, even if things don’t pan out this quarter, investors look to be rewarded with a solid level of income that is far higher than what can be found in many other corners of the broader housing market.

Bottom Line

Housing is doing quite well to start 2013 and many homebuilders have soared as a result. However, firms that own timberlands have also been beneficiaries of this trend as they provide the key material for home construction.

These timberland firms, such as PCL, haven’t been as bid up as much though, so they could still be decent values for investors heading into earnings season. So if you missed out on the initial housing surge, consider Plum Creek Timber as an excellent way to get in on the trend now before it is too late.

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