We issued an updated research report on Weyerhaeuser Company WY on Dec 3, 2015. Despite solid long-term prospects, exposure to certain headwinds has restricted the company’s growth momentum in the near term.
Weyerhaeuser anticipates reaping benefits from recovery in the U.S. housing market (housing starts anticipated to be approximately 1.1 million in 2015) and its cost-control measures. Improved profitability will also help the company reward its shareholders handsomely.
Recently, Weyerhaeuser signed a merger deal with its rival Plum Creek Timber Co. Inc. PCL. It anticipates that the consolidation will enable it to leverage the improving housing market as well as develop improved products & services for its customers. Also, the company intends to follow a better capital-allocation policy, reflecting a stronger cash position and solid balance sheet. In the long run, the company aims at achieving a dividend payout of up to 75% of funds available for distribution. In addition, the company will soon evaluate strategic alternatives for its Cellulose Fibers business.
However, notwithstanding these long-term prospects, Weyerhaeuser’s international operations expose the company to risks related to unfavorable foreign currency movements and geopolitical issues. Any economic unrest in the foreign countries served by the company will negatively affect its businesses. At the same time, the company faces threats from stiff competition and high debt levels.
For fourth-quarter 2015, Weyerhaeuser anticipates sequentially comparable earnings from its Timberlands segment, while predicting lower earnings for the Cellulose Fibers and Wood Products segments.
Weyerhaeuser, with a market capitalization of $16.1 billion, currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the building products industry include Universal Forest Products Inc. UFPI and Comfort Systems USA Inc. FIX. While Universal Forest Products sports a Zacks Rank #1 (Strong Buy), Comfort Systems carries a Zacks Rank #2 (Buy).
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