Excess supply and reduced demand for wood products are chopping away at Rayonier's margins. A weaker U.S. dollar and increased competition from Canada and South America are also slowing sales.

Rayonier (RYN), a leading forest products company, manages about 2.1 million acres of timberland in the U.S. and New Zealand. It also runs two pulp mills and three lumber manufacturing units in the U.S.

Management recently converted Rayonier into a real estate investment trust -- a move that will increase the firm's competitiveness on timberland acquisitions and will give shareholders higher cash distributions. But it won't be enough in the near term to counter dropping prices and rising operating costs, say analysts at Zacks Investment Research.

What's more, the stock is grossly overpriced. At $41, Rayonier has hit analysts' median price target, and it trades at a weighty 31 times 2004 consensus earnings estimates of $1.34 per share. Its peer group averages a P/E ratio of 14 yet analysts expect Rayonier's profit growth over the next five years to match that of the industry.

--Erin Burt

MORE: Kiplinger.com | Investing | Markets | Column

TOOLS:   E-Mail Article  |  Print Article  |  Reprint Article  |  Content Sales

E-MAIL ALERTS: Keep up-to-date with the latest Kiplinger has to offer

SAVE, SHARE & DISCUSS:    |   |   |   |   |   |   |   |   

ADD HEADLINES: