The stock price performance of Rayonier Inc. (RYN - Free Report) , a leading timberland real estate investment trust (REIT), has remained muted of late versus the industry's 3% decline.
The stock might move higher in the near term, as there are a number of favorable factors.
In second-quarter 2017, the company’s New Zealand Timber, real estate and trading segment witnessed encouraging results, primarily due to a rise in sawtimber price, strong demand from China and favorable foreign exchange movements. Moreover, recent developments in the field of biogenetics and cloning have provided an impetus to the timberland REIT’s business. Application of biogenetics leads to fast-growth in trees, ensuring maximum extraction of wood.
Key Driving Factors
Upward Estimate Revisions: We note that earnings estimates for Rayonier have displayed a healthy trend. The company’s fourth-quarter and full-year 2017 earnings estimates have moved north over the last seven days. Particularly, its fourth-quarter earnings estimate moved up 16.7% to 14 cents, while the full-year estimate increased 4.8% to 44 cents over the said time frame. Concurrent to its second-quarter results, the company revised its full-year pro forma net income from $50 million to $55 million.
Liquidity Strength: At the end of second-quarter 2017, Rayonier had cash and cash equivalents of $136.6 million, a significant increase from $85.9 million as of Dec 31, 2016. Moreover, it reported total long-term debt of $1.03 billion, reflecting a slight decrease from the Dec 31, 2016 tally. The company depends on timber harvest and real estate sales for its cash needs. These operations generate a consistent cash flow, as a result of which it does not have to depend much on other capital resources. Recurring cash generation from operations provides the company sufficient capacity to pursue timberland acquisitions.
Prudent Investments and Acquisitions: Rayonier is expanding its presence through timberlands acquisitions in the U.S. South coastal Atlantic markets. Particularly, the company has entered into three transactions with separate sellers to purchase around 95,100 acres of industrial timberlands in Florida, Georgia and South Carolina. It shelled out around $217 million for this deal which increased the company’s ownership in the U.S. South coastal Atlantic markets by around 15%.
In addition, the company has made several acquisitions and disposals in New Zealand to achieve a favorable mix in its portfolio. In particular, Rayonier shed land parcels that were unfit for harvest operations and bought lands that were centrally located and easily accessible.
Further, these acquisitions are likely to produce a solid cash yield from timber harvest operations and boost the company’s overall cash flow.
Well-Positioned Portfolio: Rayonier owns or leases around 2.7 million acres of timberlands in some of the most productive timber-growing regions of the U.S. South, Pacific Northwest and New Zealand. The timberlands are strategically located near the pulpwood consuming mills which manufacture products for the growing end-markets. Further, the recent buyouts and disposal activities in New Zealand reflect the company’s efforts to concentrate its portfolio in the targeted markets. In addition to this, rising demand from pellet manufacturers, mainly in Texas and Georgia, are aiding the REIT.
Pipeline of HBU Opportunities: Rayonier constantly strives for finding alternative uses of timberlands for higher and better uses (HBU). In fact, there are many attractive HBU opportunities across the U.S. South, mainly in the Florida and Georgia coastal corridor. The REIT aims at continuously monetizing HBU properties, through rural land sales, for raising the value of its portfolio. In fact, it has a strong pipeline of HBU opportunities with numerous prospects either under contract or negotiation. The company recently announced two homebuilders for the wildlife community development project
The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Other Stocks to Consider
Other top-ranked stocks in the real estate space are National Health Investors, Inc. (NHI - Free Report) , PS Business Parks, Inc. (PSB - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) . All three stocks carry a Zacks Rank #2.
While National Health Investors and PS Business Parks, Inc. have expected long-term growth rates of 3.8% and 5%, respectively, Communications Sales & Leasing has an expected long-term growth rate of 7.5%.
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