Last week, Plum Creek Timber Company Inc. – a leading timber real estate investment trust (REIT) – acquired an interest in four South Carolina-based quarries for $75 million. The quarries, with around 144 million tons of crushed stone production, were bought from rock products specialist – Vulcan Materials Company (VMC - Free Report) .
As per the deal, Vulcan will continue to own and operate the quarries. Conversely, Plum Creek will enjoy royalty payments from the production and sale of crushed stone, mined from the quarries for the next 25 years, starting this month.
The unusual investment of the company for buying rocks, instead of timberland, reflects its strategic move to boost the natural resource businesses. The company forms strategic alliances with industry-specific leaders to focus on natural resource opportunities, such as mineral extraction, natural gas production as well as communication and transportation, for enhancing the segment. In the third quarter of 2012, the company generated around $5 million of revenue from this segment.
We expect the abovementioned transaction to be accretive to the company’s earnings going forward, on the back of Vulcan’s market-leading skills and high-potential prospects of the South Carolina market.
Plum Creek is scheduled to release its fourth-quarter 2012 results on Jan 28, 2013, after the closing bell. The Zacks Consensus Estimate for the company’s fourth-quarter earnings is currently pegged at 29 cents per share.
Zacks Earnings ESP (Read: ZACKS EARNINGS ESP: A BETTER METHOD) for Plum Creek is -3.45% for the fourth quarter. This, along with its Zacks Rank #3 (Hold), reduces the chance for a positive earnings surprise.
Among the company's peers that are performing better and are worth a look include Louisiana-Pacific Corp. (LPX - Free Report) and Weyerhaeuser Co. (WY - Free Report) , carrying Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively.