The world's biggest lumber company, Weyerhaeuser, is slimming down and spiffing up its operations. The Federal Way, Wash., timber producer has been shuttering and selling lagging mills and is looking to unload its under performing fine-paper unit. Weyerhaeuser (symbol WY) is also changing the way it does business. The company is trying to better manage inventories by stocking lumber based on forecasts from customers, not on Weyerhaeuser's own estimates.
These restructuring efforts are behind an upgrade of Weyerhaeuser's shares from neutral to buy on Tuesday by UBS Investment Research analyst Richard Schneider. The stock is down 21% from its 52-week high of $76 in April, primarily because of the overall market's decline and growing concern that cooling housing starts will mean less demand for lumber. Schneider says the lower price means "increased potential upside" for the stock, which closed at $60 on Tuesday. He gave it a 12-month price target of $73. The stock trades at 16 times the $3.76 per share that analysts expect the company to earn in 2006, according to Thomson First Call.
Schneider cited several catalysts that could benefit Weyerhaeuser, including the pending decision to sell the lagging fine-paper unit, which he estimates could net $2.5 billion. Schneider also said a potential cut in the tax rate on timber sales could save the company $200 million annually. A bill to reduce that rate from 35% to 14% passed the House of Representatives last week and is being heard in the Senate this week.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What's more, Weyerhaeuser's balance sheet is reasonably strong, Schneider said. The company is focusing on returning cash to shareholders and in mid June raised its dividend 20%, to $2.40 per share.
In April, Weyerhaeuser reported first-quarter income of $166 million, down from $239 million during the same period a year ago because of a charge related to its fine-paper business. Sales were flat compared with the first quarter of 2005. After the earnings release, the company announced that it was considering selling all or part of the fine-paper unit. Officials wouldn't divulge specifics but said the company was in active discussions about the sale.
-
Investing Abroad Could Pay Off — Here's HowCountries overseas are stimulating their economies, and their stocks are compelling bargains.
-
Retire in Belize for Stunning Natural Beauty and CultureBelize offers miles of protected land and ocean, a rich mix of cultures and a chill lifestyle. Best yet — the income requirement is just $2K per month.
-
My Three-Day Rule for Investing: And If it Applies NowStock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
The Best REITs to BuyReal estate investment trusts, or REITs, are a special class of stocks that are known for their high dividend yields. Here's how to find the best ones to buy.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
