What to Expect from Rayonier (RYN) this Earnings Season?

Real estate investment trust ("REIT") Rayonier Inc. RYN is expected to report second-quarter 2016 results on Aug 3, 2016, after the market closes.

The company reported a positive earnings surprise of 37.50% in the preceding quarter, and an average positive surprise of 5.16% for the trailing four quarters. The Zacks Consensus estimate for second-quarter earnings is currently pegged at 3 cents per share.

Let's see how things have shaped up prior to this announcement.

Factors to Consider

Rayonier constantly strives to improve the quality of its timberland holdings by divesting non-core timberlands and re-investing the proceeds toward strategic timberlands.

In early May, in a bid to give a big facelift to its Pacific Northwest timberland portfolio, the company closed two separate transactions. The first one was the acquisition of Menasha Forest Products Corporation in partnership with Atlanta-based Forest Investment Associates ("FIA") for $263 million. Notably, the acquisition of the 61,000 acres of top-quality timberlands, situated in Oregon and Washington was expected to give a boost to the company's sustainable yield and annual harvest.

The second deal involved the disposition of 55,000 acres of pre-merchantable timberland in Washington to FIA for around $130 million. The disposition was expected to enhance the timberland portfolio in the Pacific Northwest region by augmenting the share of merchantable timber.

Further, geographic diversity, better pricing power due to favorable demand-supply dynamics, bode well for the company. Moreover, recent developments in biogenetics & cloning, which are helping in the rapid growth of trees, are expected to drive its growth engine.

However, similar to other timberland REITs, Rayonier's business is governed by rules of the federal and state forestry commissions. In other words, Rayonier has to comply with stricter regulatory requirements compared with other industries. Further, higher degree of volatility in timber prices and seasonality associated with forest products industry continue to pose headwinds before the company.

Moreover, Rayonier faces cut-throat competition from national and local players regarding a number of factors, including quality and price. Also, wood products, in general, are encountering increasing rivalry from a variety of substitutes like non-wood and engineered wood products.

Overall, Rayonier's performance during the quarter was inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate remained unchanged at 3 cents per share over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Rayonier will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate currently stand at 3 cents, which translates into a Earnings ESP of 0.00%.

Zacks Rank: Rayonier's Zacks Rank #3, when combined with a 0.00% Earnings ESP, makes surprise prediction difficult.

Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

RAYONIER INC Price and EPS Surprise

RAYONIER INC Price and EPS Surprise | RAYONIER INC Quote

Stocks to Consider

Here are a few stocks in the real estate investment trust sector you may want to consider, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

Ashford Hospitality Prime, Inc. AHP has an Earnings ESP of +6.15% and a Zacks Rank #3. The company will report results on Aug 3.

EPR Properties EPR has an Earnings ESP of +1.72% and a Zacks Rank #3. The company will release results on Aug 3.

National Health Investors Inc. NHI has an Earnings ESP of +0.83% and a Zacks Rank #2. The company will report results on Aug 5.

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