We have recently downgraded our recommendation for Plum Creek Timber Co. Inc. (PCL), the largest publicly-held timber real estate investment trust (REIT), to Neutral from Outperform as we now anticipate it to perform in line with the broader market.
Plum Creek has a diversified timber and land base that enables it to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing. In addition, the diversified timber and land base provides excellent operational flexibility to respond to changing market conditions amid challenging macroeconomic headwinds. The upsurge in demographic trends driving housing markets and demand for real estate properties across the country also provides a strong economic backdrop for the company to demonstrate solid financial performance in the future.
However, Plum Creek’s business is affected by the cyclical nature of the forest products industry, and prices for logs and manufactured wood products remain highly volatile. This limits the above-market performance of the company. In addition, Plum Creek operates in a cutthroat market and competes with national and local players on a number of factors. Moreover, wood products face increasing competition from a variety of substitute products. This in turn has affected the top-line growth of the company, and has put considerable pressure on maintaining its profitability.
Earnings Estimate Revisions – Overview
Earnings estimate revisions have remained relatively static for Plum Creek in the last 30 days, meaning that analysts were cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate details.
Agreement of Analysts
In the last 7 days, there were no earnings estimate revisions for fiscal 2010 and 2011 as analysts, in general, were neutral on the future outlook of the company. In the last 30 days, only 1 of the 12 analysts covering the stock has downgraded its earnings estimate for fiscal 2010. For fiscal 2011, 1 out of 10 analysts covering the stock has lowered the earnings estimates, while none have increased them. This is a rather negative showing.
Magnitude of Estimate Revisions
The magnitude of earnings estimates has remained fairly stable in the last 30 days for fiscal 2010 and 2011 at $1.48 and $1.61, respectively. This signifies that there is no clear directional movement for earnings estimates as analysts remain overtly unbiased on the stock.
Moving Forward
Currently, Plum Creek shares are maintaining a Zacks #3 Rank, which translates to a short-term Hold recommendation. We remain bullish about one of its peers, Rayonier Inc. (RYN) and maintain a Zacks #2 Rank, which translates to a short-term Buy rating. Our long-term recommendation for Rayonier remains at Neutral as we anticipate the stock to perform in line with the broader market.
Read the full analyst report on “PCL”
Read the full analyst report on “RYN”
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