UPDATE: Bank of America Downgrades Rayonier to Neutral, Lowers PT on Uncertain Pricing Outlook

In a report published Friday, Bank of America analyst Michael A. Roxland downgraded the rating on Rayonier RYN from Buy to Neutral, and lowered the price target from $63.00 to $60.00. In the report, Bank of America noted, “While RYN generally reported EPS in-line with our estimate, we downgrade to a Neutral rating and suggest that investors currently hold positions rather than add. In the near term, it appears that cellulose specialties pulp faces near-term pricing hurdles as evidenced by the pushback RYN is currently receiving from customers with respect to 2014 pricing. Specifically, the company cited increased hi-alpha pulp competition from pulp producers who currently produce other forms of hi-alpha pulp (especially those targeting challenged European construction and automotive markets), potential capacity conversions/switches to hi-alpha pulp from lower margin commodity viscose pulp (an excess capacitized market), and the potential for excess capacity in hi-alpha pulp from recent capacity additions (including RYN's own 190K MT line conversion). We also note the risk that cellulose specialties prices could decline if the market gets too saturated with supply (that said we are currently modeling cellulose specialties prices to increase 2% in 2014). We will continue to monitor supply/demand and pricing dynamics with respect to our Neutral rating - RYN typically provides a pricing update on its 4Q call. At present, we don't see further downside to our rating given RYN's attractive dividend yield (3.6%) and increasing free cash flow (though more modest than before).” Rayonier closed on Thursday at $54.96.
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Posted In: Analyst ColorDowngradesAnalyst RatingsBank of AmericaMichael A. Roxland
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