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Should Investors Hold Onto Rayonier (RYN) Stock for Now?
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Rayonier Inc.’s (RYN - Free Report) portfolio of timberlands in some of the most productive timber-growing regions of the United States South, the Pacific Northwest and New Zealand positions it well for growth.
The lumber production and capacity in the U.S. South have grown substantially over the past few years. This makes Rayonier well-poised to capitalize on the favorable trend, given that 73% of its Southern timberlands are located in the top quartile markets.
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, aiding the New Zealand segment’s export demand.
Moreover, the 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.
To enhance the quality and expand its portfolio, Rayonier has closed several strategic acquisitions over the past few years. Notably, the company has completed $1.9 billion of acquisitions since 2014.
In February this year, Rayonier acquired 66,800 acres in Texas and Georgia from Nuveen Natural Capital for $124.2 million before transaction costs. Located in the highly productive areas of Texas and Georgia, with a mature age-class distribution, the acquisition helps increase Rayonier’s scale in strong timber markets.
On the balance sheet front, Rayonier exited second-quarter 2022 with $279.3 million in cash and cash equivalents (excluding Timber Funds). Its current credit ratings of BBB- / Stable from S&P and Baa3 / Stable from Moody’s give it favorable access to the debt market. Therefore, with a well-laddered debt maturity profile, significant asset coverage and ample financial flexibility, Rayonier is well-poised to capitalize on future growth opportunities.
However, given that several Rayonier’s segments export products outside the United States, its business is often subjected to foreign market adversities. Particularly, the Pacific Northwest and New Zealand segments export a large quantity of timber to China. The coronavirus-related restrictions and lockdowns imposed in China hurt the export demand for the New Zealand segment and resulted in high port inventories in the second quarter of 2022.
As a result, this makes RYN’s earnings susceptible to foreign exchange fluctuations and the macroeconomic situation prevailing in the countries that import the timber.
The timberland business is governed by various federal rules and state forestry commissions. In addition, timberland REITs need to follow certain eco-friendly mandates in their trade. Consequently, changes in these laws and regulations could adversely impact Rayonier’s business.
Analysts, too, seem bearish on the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 earnings per share does not indicate a favorable outlook as it has been revised 4.7% downward in the past month to 61 cents.
Shares of RYN have lost 17.9% in the quarter-to-date period compared with its industry’s decline of 6.4%.
The Zacks Consensus Estimate for SBA Communications’ current-year funds from operations (FFO) per share has moved marginally northward in the past month to $12.17.
The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised marginally upward over the past week to $8.49.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 15.2% upward in the past two months to $1.59.
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Should Investors Hold Onto Rayonier (RYN) Stock for Now?
Rayonier Inc.’s (RYN - Free Report) portfolio of timberlands in some of the most productive timber-growing regions of the United States South, the Pacific Northwest and New Zealand positions it well for growth.
The lumber production and capacity in the U.S. South have grown substantially over the past few years. This makes Rayonier well-poised to capitalize on the favorable trend, given that 73% of its Southern timberlands are located in the top quartile markets.
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, aiding the New Zealand segment’s export demand.
Moreover, the 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.
To enhance the quality and expand its portfolio, Rayonier has closed several strategic acquisitions over the past few years. Notably, the company has completed $1.9 billion of acquisitions since 2014.
In February this year, Rayonier acquired 66,800 acres in Texas and Georgia from Nuveen Natural Capital for $124.2 million before transaction costs. Located in the highly productive areas of Texas and Georgia, with a mature age-class distribution, the acquisition helps increase Rayonier’s scale in strong timber markets.
On the balance sheet front, Rayonier exited second-quarter 2022 with $279.3 million in cash and cash equivalents (excluding Timber Funds). Its current credit ratings of BBB- / Stable from S&P and Baa3 / Stable from Moody’s give it favorable access to the debt market. Therefore, with a well-laddered debt maturity profile, significant asset coverage and ample financial flexibility, Rayonier is well-poised to capitalize on future growth opportunities.
However, given that several Rayonier’s segments export products outside the United States, its business is often subjected to foreign market adversities. Particularly, the Pacific Northwest and New Zealand segments export a large quantity of timber to China. The coronavirus-related restrictions and lockdowns imposed in China hurt the export demand for the New Zealand segment and resulted in high port inventories in the second quarter of 2022.
As a result, this makes RYN’s earnings susceptible to foreign exchange fluctuations and the macroeconomic situation prevailing in the countries that import the timber.
The timberland business is governed by various federal rules and state forestry commissions. In addition, timberland REITs need to follow certain eco-friendly mandates in their trade. Consequently, changes in these laws and regulations could adversely impact Rayonier’s business.
Analysts, too, seem bearish on the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 earnings per share does not indicate a favorable outlook as it has been revised 4.7% downward in the past month to 61 cents.
Shares of RYN have lost 17.9% in the quarter-to-date period compared with its industry’s decline of 6.4%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are SBA Communications (SBAC - Free Report) , Extra Space Storage (EXR - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SBA Communications’ current-year funds from operations (FFO) per share has moved marginally northward in the past month to $12.17.
The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised marginally upward over the past week to $8.49.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 15.2% upward in the past two months to $1.59.