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Here's Why You Should Hold on to Rayonier (RYN) Stock Now

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Rayonier Inc. (RYN - Free Report) , a leading pure-play timberland real estate investment trust (REIT), is well-poised to benefit from its portfolio of timberlands in some of the most productive timber-growing regions of the United States South, the Pacific Northwest and New Zealand.

The lumber production and capacity in the U.S. South have grown substantially over the past few years. Rayonier is well-placed to capitalize on this favorable trend, given that 73% of its Southern timberlands are located in the top quartile markets.

Moreover, the pricing in the Pacific Northwest segment is expected to remain healthy owing to the strong domestic lumber markets and improved export market demand. In addition, more than half of the New Zealand segment’s volume (excluding the Trading volume) is sold into the export markets, with China being the largest source of demand. The timber supply deficit in China is expected to fuel softwood log and lumber imports, thereby aiding the New Zealand segment’s export demand.  

Further, timberland REIT’s business has significantly benefited from the recent developments in the field of biogenetics and cloning that have led to faster growth in trees, thus ensuring proper sizes for maximum extraction of wood.

Rayonier’s recurring cash generation from its operations gives it enough capacity to maintain the productivity of the timberlands through replanting and silviculture and pursue timberland acquisitions. Annually, it invests nearly $40 million in silviculture and regeneration.

Rayonier maintains a strong balance sheet with enough liquidity to support its expansionary moves. The company exited the second quarter of 2022 with $279.3 million in cash and cash equivalents (excluding Timber Funds). Also, a strong, investment-grade credit profile, significant asset coverage and a well-staggered debt maturity profile play well to its advantage.

However, the timberland business is subject to various federal rules and state forestry commissions. In addition, timberland REITs need to follow certain eco-friendly mandates in their trade. As a result, changes in these laws and regulations might adversely impact Rayonier’s business.

A major part of the company’s business is exposed to the foreign market. Particularly, the Pacific Northwest and New Zealand segments export a large quantity of timber to China. This not only makes RYN’s earnings susceptible to foreign exchange fluctuations but also to the macroeconomic situation prevailing in the countries that import the timber. During second-quarter 2022, the coronavirus-related restrictions and lockdowns imposed in China hurt the export demand for this segment and resulted in high port inventories.

Although shares of RYN have gained 0.6% in the past six months against the industry’s fall of 11.7%, analysts seem bearish about this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 earnings per share does not indicate a favorable outlook for the company as it has been revised 1.5% downward in the past week to 64 cents.

Zacks Investment Research
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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis (PLD - Free Report) , Extra Space Storage (EXR - Free Report) and Host Hotels & Resorts (HST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Prologis’ current-year funds from operations (FFO) per share has marginally moved northward in the past month to $5.17.

The Zacks Consensus Estimate for Extra Space Storage’s 2022 FFO per share has moved marginally upward in the past month to $8.30.

The Zacks Consensus Estimate for Host Hotels & Resorts’ ongoing year’s FFO per share has been raised 3.5% over the past week to $1.75.

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