Forest product manufacturer and supplier Weyerhaeuser Company WY recently announced its decision to convert its outstanding 6.375% Mandatory Convertible Preference Shares, Series A into common shares. The conversion will be effective Jul 1, 2016.
As revealed, each preference share will be converted into 1.6929 Weyerhaeuser common shares. The conversion rate was determined using the average of the volume weighted average price of the company’s common shares from Jun 1 to Jun 28. The company will convert roughly 13.8 million preference shares outstanding as on Jun 28 by issuing approximately 23 million common shares. The newly issued shares will be included in the company’s basic share count.
Weyerhaeuser also announced that no fractional common shares will be issued for the conversion. However, cash compensation will be paid at the rate of $28.1226 per common share.
We believe that inflated basic share count is likely to dilute Weyerhaeuser’s earnings per share in the quarters ahead. Ending first-quarter 2016, the company had approximately 759 million common shares outstanding while it recorded earnings of 24 cents per share. For second-quarter 2016, the Zacks Consensus Estimate for the stock is 20 cents while the same is 92 cents per share for 2016 and $1.20 for 2017.
Weyerhaeuser, with a $21.8 billion market capitalization, is one of the leading U.S. forest product companies. Presently, the stock carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the building products industry include Boise Cascade Company BCC, Louisiana-Pacific Corp. LPX and Universal Forest Products Inc. UFPI. While both Boise Cascade Company and Louisiana-Pacific sport a Zacks Rank #1 (Strong Buy), Universal Forest Products carries a Zacks Rank #2 (Buy).
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