Inventory Buildups, Subpar Demand To Blame For Rayonier's Downgrade At BMO

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Analysts at BMO Capital Markets no longer hold a bullish rating on Rayonier Inc. RYN, a leading timberland real estate investment trust. Mark Wilde downgraded Rayonier's stock from Outperform to Market Perform with an unchanged $31 price target.

Rayonier has been operating over the past 10 years in an environment characterized by subpar demand while at the same time it has been improving its forest productivity, Wilde explained. As such, this has created an inventory buildup which would be hard to work through at a time when southern sawlog prices are 60 percent below (in nominal terms) what they were at in 2005.

In fact, southern sawlog prices have now declined for the past seven quarters which calls into question when or if a recovery in prices will occur. Meanwhile, demand for sawlog is expected to increase moving forward as lumber production continues to pivot towards the south, the analyst added.

On the other hand, there are a few positive aspects of Rayonier's business, including a disciplined management and board team, including two of the "smartest timberland investment managers" Scott Jones and Andy Wiltshire. Yet at the end of the day, a downgrade is justified merely due to an inventory build and skepticism around the timing and extent of a price recovery in southern log.

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Posted In: Analyst ColorDowngradesAnalyst RatingsagricultureAndy WiltshireMark WildeSawlogScott Jones
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