Real estate investment trust (“REIT”) Rayonier Inc. RYN is expected to report first-quarter 2015 results on May 6.
Although the company posted a 12.50% positive earnings surprise in the preceding quarter, the stock has recorded a negative average surprise of 14.72% for the trailing four quarters.
Let’s see how things have shaped up for this announcement.
Factors to Consider This Quarter
In fourth-quarter 2014, Rayonier reported pro-forma operating income of $16.6 million, down 53.5% sequentially and 52.4% year over year. Though the company reported pro forma operating income of $104.3 million for full-year 2014, up 12.6% from 2013 level; for 2015, however, it targets pro-forma operating income in a range of $67–$92 million.
For Pacific Northwest Timber segment, pro-forma operating income came in at $31.4 million, down from $32.7 million in 2013. For 2015, Rayonier expects pro-forma operating income from the segment within $13–$18 million. Operating income from the Real Estate segment came in at $47.5 million, down 15% from that of 2013. For 2015, the REIT expects the same in the range of $25–$35 million.
Moreover, in 2015, Rayonier plans to achieve harvest volumes in the Pacific Northwest around 14% below 2014 levels, while it expects harvest volumes in the South to be modestly higher than 2014 levels. For the Real Estate segment, the company predicts a modest decline in rural land sales.
Nevertheless, improving revenues from the timberlands in the U.S. South and New Zealand came as a relief for the company in the fourth quarter. Also, with signs of improvement in the housing market, sawtimber prices are expected to move up.
Rayonier also aims to enhance its portfolio by selling non-strategic timberland and acquiring higher-quality land in stronger markets. Backed by a strong balance sheet, we expect the company will have continued access to capital on favorable terms, which, in turn, will help it fund future growth opportunities.
Earnings Whispers
Our proven model does not conclusively show that Rayonier will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate currently stand at 8 cents and 7 cents, respectively, which translates into an Earnings ESP of 14.29%.
Zacks Rank #4: Rayonier’s Zacks Rank #4 (Sell), when combined with a 0.00% Earnings ESP, makes surprise prediction difficult.
Note that, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You could consider stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:
Cousins Properties Inc. CUZ has an Earnings ESP of +5.00% and a Zacks Rank #3. The company will report first-quarter results on May 6.
Essex Property Trust Inc. ESS has an Earnings ESP of +0.45% and a Zacks Rank #3. The company will report first-quarter results on May 6.
STORE Capital Corp. STOR has an Earnings ESP of +3.33% and a Zacks Rank #2. The company will report first-quarter results on May 14.
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