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What Makes Weyerhaeuser (WY) a Suitable Investment Option?

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We issued an updated research report on Weyerhaeuser Company (WY - Free Report) on Jun 4.

With approximately $28.5-billion market capitalization, this building products company currently carries a Zacks Rank #2 (Buy). The company’s earnings are projected to grow 5% in the next three to five years.

Let’s delve deeper and discuss why investors should consider adding Weyerhaeuser’s stock to their portfolio.

Financial & Share Price Performances, Earnings Estimate Revision: Of the last four quarters, Weyerhaeuser delivered better-than-expected results in three while lagging estimates in one. Average earnings surprise was a positive 2.76%. Notably, in the first quarter of 2018, the company pulled off an earnings and sales surprise of 9.1% and 4.2%, respectively. Also, its earnings surged 63.6% on a year-over-year basis.

Solid financial results have been one of the reasons for the company’s stock-price rally of 10.8% in the last three months. Though it marginally outpaced 10.3% increase recorded by the industry, this return comfortably surpassed 0.8% growth recorded by the Zacks Construction sector.




Also, in the last 60 days, the company’s earnings estimates for 2018 and 2019 have been increased by three and two brokerage firms, respectively. The stock’s Zacks Consensus Estimate is pegged at $1.46 for 2018 and $1.49 for 2019, representing growth of 7.4% and 8% from their respective tallies, 60 days ago.

Favorable Operating Conditions: We believe that strengthening U.S. economy and healthy growth prospects of the global market will create favorable operating conditions for companies that are operating in the building products industry. Considering the housing market of the United States, increase in housing starts, as well as higher demand for repair and remodeling activities, will spur demand for building products.

Notably, Weyerhaeuser anticipates housing starts for a single family to increased 10% to approximately 1.3 million in 2018. It’s worth mentioning here that the company predicts earnings in the Wood Products segment to grow higher sequentially in the second quarter of 2018. Also, earnings in the Timberlands segment are anticipated to improve substantially on a year-over-year basis.

Strategic Decisions to Drive Profitability: Over time, Weyerhaeuser has undertaken a number of strategic decisions that have helped in augmenting its market reach, strengthened its product portfolio and augmented its profitability.

The company undertook several acquisitions between 2013 and 2017. It acquired Longview Timber in July 2013 while divesting WRECO in May 2014, Cellulose Fibers pulp mills in December 2016, timberlands and manufacturing operations in Uruguay in September 2017, and its 21% equity interest in Twin Creeks Timber in October 2017. In addition to these, merger with Plum Creek Timber in February 2016 enabled Weyerhaeuser to benefit from strengthening housing-market conditions in the United States as well as offer better products and services to its customers.

Moreover, the company’s initiatives aimed at operational excellence yielded benefits of $172 million for the Timberlands and $327 million for the Wood Products segments between 2014 and 2017. These initiatives are anticipated to yield a benefit of $40-$50 million for the Timberlands segment and $40-$60 million for the Wood Products segment in 2018.

Dividend Payments: Weyerhaeuser is an ardent believer of rewarding shareholders handsomely, especially through dividend payments. Over the last five years, its annual dividend rate has grown from 81 cents in 2013 to $1.25 in 2017. After 3.5% hike in quarterly dividend rate announced in November 2017, the company’s annual dividend rate stands at $1.28. Moreover, the company’s dividend payout rate has grown from 70.4% in 2013 to 108.7% in 2017.

Other Stocks to Consider

Some other top-ranked stocks worth considering in the industry are Boise Cascade Company (BCC - Free Report) , Norbord Inc. (OSB - Free Report) and Trex Company, Inc. (TREX - Free Report) . While both Boise Cascade and Norbord sport a Zacks Rank #1 (Strong Buy), Trex Company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for these three stocks improved for the current year and the next year. Also, average earnings surprise for the last four quarters was a positive 32.92% for Boise Cascade, 6.99% for Norbord and 11.68% for Trex Company.

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