Rayonier Inc.’s RYN geographical diversity and strategic location of its timberlands offer higher pricing power to the company. Robust demand for rural HBU properties is also likely to drive revenues. However, heightening competition and foreign exchange fluctuations remain concerns.
The location of Rayonier’s 2.6 million acres of timberlands offers a variety of advantages. The timberlands belong to some of the most productive timber-growing regions of the U.S. South, Pacific Northwest and New Zealand. This enables the company to enjoy higher harvest volumes. Further, their proximity to the pulpwood consuming mills ensures a healthy demand for the produced timber. Rising demand from pellet manufacturers, mainly in Texas and Georgia, also enables the company to enjoy favorable demand-supply dynamics, and export market alternatives. This, in turn, provides the company power to raise prices.
Moreover, the company made acquisitions of industrial timberland amounting to $242.9 million in 2017. These acquisitions have upgraded the company’s U.S. South and Pacific Northwest portfolio, and placed it well to benefit from the ongoing U.S. housing recovery.
Further, Rayonier’s constant search for higher and better uses (HBU) of its timberlands improves scope for revenue growth. In fact, there are many attractive HBU opportunities available across the U.S. South, mainly in the Florida and Georgia coastal corridor.
Also, developments in the field of biogenetics and cloning are expected to provide tremendous impetus to Rayonier’s business. Application of biogenetics leads to fast-growth in trees, ensuring proper sizes for maximum extraction of wood.
In addition, Rayonier is self sufficient in terms of maintaining cash. Its revenues from timber harvest and real estate sales remain adequate to fund its requirements. Any acquisition that it undertakes is also comfortably funded through recurring cash from operations.
The company’s shares have gained 22.1% over the past year compared to the industry’s growth of 14.8%. The stock currently carries a Zacks Rank #3 (Hold).
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Nonetheless, intense competition in the local as well as the national market remains a concern for Rayonier. Substitute products like non-wood and engineered wood products further add to this competition. Its Pacific Northwest Timber segment witnessed a marginal fall in export volumes in the first half of 2018. The New Zealand timber segment has also faced strong competition from domestic peers and exporters.
Furthermore, the ongoing trade tension between the United States and China is expected to affect Rayonier’s export performance. While the Pacific Northwest segment exports huge volumes to China, the New Zealand segment exports to China, Korea and India. Moreover, frequent changes in laws and regulations also pose a challenge to Rayonier.
Key Picks
A few better-ranked stocks in the same industry include Armstrong Flooring, Inc. AFI, Norbord Inc. OSB and Potlatch Corporation PCH. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Armstrong Flooring’s earnings estimates for 2018 have been revised 79.2% upward over the past month. Its share price has risen 14.1% in a year’s time.
Norbord’s earnings per share estimates for the current year have moved up 3.6% in a month’s time. Its shares have gained 8.1% over the past year.
Potlatch’s earnings per share estimates for 2018 inched up 1.5% over the past month. The stock has gained 2.7% in the past year.
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