Is Plum Creek in Danger Zone? - Analyst Blog

On May 16, 2014, we issued an updated research report on the timber real estate investment trust (REIT), Plum Creek Timber Company Inc. PCL.

Plum Creek's first-quarter 2014 earnings of 17 cents per share came ahead of the Zacks Consensus Estimate, but was significantly below (down 18 cents) the prior-year quarter earnings of 35 cents per share.

This unfavorable year-over-year comparison was due to a benefit of 21 cents per share experienced in the prior-year quarter from the sale of a large non-strategic timberland. Moreover, lower operations in the real estate segment in the quarter added to the woes and total revenue fell 6.8% year over year and missed the Zacks Consensus Estimate.

Though the Southern Timberland buyout holds good for Plum Creek's long-term growth and is expected to be cash flow accretive on a per share basis, earnings are projected to be dilutive in 2014. Also, northern sawlog prices are expected to decline in the second quarter with log supply expanding seasonally with improved timber land access on the West Coast.

In addition, Plum Creek's business is affected by the seasonality of the forest products industry and by high volatility in the price of logs and manufactured wood products. Given these factors, we expect the company's bottom-line growth to remain restrained in the coming quarters

Analysts turned skeptical on the stock's future performance. Hence, over the last 7 days, the Zacks Consensus Estimate for 2014 and 2015 remained unchanged at $1.39 and $1.66 per share, respectively. Plum Creek currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some better-ranked stocks in the REIT sector are Duke Realty Corporation DRE, SL Green Realty Corp. SLG and Healthcare Realty Trust Incorporated HR. All these stocks have a Zacks Rank #2 (Buy).

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