Hot Stock: Weyerhaeuser

Taking advantage of the recovery.

So you want to buy into the U.S. housing recovery and you’re wondering if you’re too late? Well, we’re here to tell that while you’ve missed the boat on many companies, there are others that could deliver big gains. One such company is Weyerhaeuser (NYSE: WY) of Federal Way, Wash., a forestry company that harvests trees, builds homes and is involved in other housing-related activities.

According to Paul Quinn, an analyst with RBC Capital Markets, about 70% of the company’s 2012 revenues were tied into the U.S. housing recovery. That’s why the company’s share price climbed 37% over the last 12 months.

Before you ask yourself how the price could possibly grow from there, consider this: year-to-date, the stock is flat and not because the recovery has slowed down, which it hasn’t. In Q2 of this year lumber prices fell 25% as inventories built up overseas. Prices, though, are climbing and Quinn thinks they should get back to normal in the fall.

That lumber price drop might be an in for investors, because if you read Quinn’s June 10 report, the company is otherwise solid. It also has a lot of long-term potential. At its recent investor day, Dan Fulton, Weyerhaeuser’s CEO, (who will be replaced Aug. 1 by Doyle Simons) said that it expects to increase its Western timberland harvest by 25% and its Southern harvest by 15% over the next 17 years.

Collin Mings, an analyst with Raymond James, says EBITDA from its timberland operations will grow to $600 million between now and 2017, up from $460 million today. By 2022, timberland EBTIDA should be closer to $800 million. “A favorable geographic footprint and desirable species mix leaves it well positioned to serve the international log markets (21% of timberlands revenue is from export log sales),” wrote Mings in a May 13 report.

The company has also done a good job of “simplifying the company’s profile,” says Mings. It’s concentrating more on its timberland assets and he thinks it will narrow its focus even further. “We would not be surprised to see the company look to sell (or) spin-off its real estate platform and/or its cellulose fibers business at some point,” he writes.

Mings thinks it can grow its earnings per share to $1.75 in 2015, up from $1.30 this year, while Quinn thinks it will hit the $1.75 EPS in 2014. Right now, the stock is trading at $29 a share, but Quinn, who recently upgraded his 12-month target, expects it to hit $34 within a year. Mings thinks it could $36.

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