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Is a Hold Strategy Apt for Rayonier (RYN) Stock Right 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 U.S. South, Pacific Northwest and New Zealand offer the company geographic diversity. However, cut-throat competition from national and local players, regarding a number of factors, including quality and price, remains a concern.

Notably, the company’s timberlands are strategically located near the pulpwood consuming mills which manufacture products for growing end-markets, offering it a higher pricing power. Moreover, favorable demand-supply dynamics, opportunities to capitalize on the export market and increasing demand for softwood pulpwood support the overall composite pricing in Rayonier’s market.

To further fortify its portfolio, the company remains focused on accretive acquisitions. Timberland buyouts for the nine-month period ended Sep 30, 2018, and full-year 2017 aggregated $39 million and $242.9 million, respectively. These efforts also upgraded Rayonier’s U.S. South and Pacific Northwest portfolio.

In fact, timber harvest and real estate sales account for majority of the company’s cash flow from operations. Importantly, its 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 sufficient capacity to pursue timberland acquisitions.

Over the past three months, Rayonier’s shares have declined 10.7% which is narrower than its industry’s loss of 27.1%. Encouragingly, the trend in estimate revisions of current-year net income per share indicates a favorable outlook for the company. In fact, the stock has seen the Zacks Consensus Estimate for 2018 net income per share being revised 17.4% upward in two months’ time.

Nonetheless, wood products, in general, encounter rising rivalry from a variety of substitute products, like non-wood and engineered wood products. Additionally, its New Zealand Timber segment has been experiencing intense competition from domestic peers and exporters. This may impact the Zacks Rank #3 (Hold) company’s pricing power.

Furthermore, an international footprint makes its earnings susceptible to foreign-exchange fluctuations. Particularly, the Pacific Northwest exports huge volumes of timber to China, while the New Zealand Timber segment exports to markets in China, Korea and India.

Also, since timberland REITs have to comply with strict regulatory requirements compared with other industries, frequent changes in laws may affect the business of industry players, including Rayonier.

Key Picks

Some better-ranked stocks from the real estate investment trust (REIT) space are OUTFRONT Media Inc. (OUT - Free Report) , PS Business Parks, Inc. (PSB - Free Report) and Cousins Properties Incorporated (CUZ - 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.

OUTFRONT Media’s funds from operations (FFO) per share estimates for 2018 have been marginally revised upward to $2.09 in the past 60 days. Its shares have gained 3.8% in the past six months.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved 0.9% north to $6.45 over the past month. Its shares have returned 13.4% over the past six months.

Cousins Properties’ FFO per share estimates for 2018 have been revised marginally up to 62 cents in 60 days’ time.

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