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Analyzing the Valuations of Weyerhaeuser and Plum Creek Timber


Dec. 4 2020, Updated 10:50 a.m. ET

Examining the valuations affecting the value of the securities

There are no accurate calculations that can predict the future of a stock price in the near future. However, supply and demand in the industry play a crucial role. Various factors can cause a shift in the demand for products, like trends in the housing market, the price of timber, and availability of substitutes. The graph below shows the price-to-earning ratios (or PE) of Weyerhaeuser (WY), Plum Creek Timber (PCL), and Potlatch (PCH) over the years.

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PE, PS, and dividend yield

Let’s explore the three key indicators. The PE ratio denotes how much value was earned by an investor through investing a dollar on the security. The PE for WY is 30.19, whereas, the PE for its nearest competitors Louisiana-Pacific (LPX) and Potlatch (PCH) is negative and 28.08, respectively. PE for PCL is 38.63, while the industry’s average is at 21.33.

On the other hand, the price-to-sales ratio (or PS) is the value placed on each dollar of a company’s sales or revenues. The PS for WY is 2.34. Meanwhile, competitors LPX and PCH stood at 1.34 and 2.30, respectively. PCL is again ahead at a PS of 5.70.

Though the above two ratios are important to any investor, it’s the dividend that mainly attracts investors to any security as it provides a source of extra income and denotes the stability of the company. Weyerhaeuser’s current dividend yield at 4%. Meanwhile, Potlatch is earning a dividend yield of 4.5%, and Plum Creek Timber is providing a dividend yield of 3%. In the past one year, the dividend growth rate for PCL was stable, whereas, WY showed significant growth of 18%.

Analyst recommendations for Weyerhaeuser and Plum Creek

Analysts on Wall Street seem quite positive about the WY and PCL securities. The buy recommendations for WY are high, with 11 analysts in support and four with the view of holding the security for the time being. Comparatively, PCL has four analysts in support of buying, compared to six analysts who are recommend holding the security for the time being.

In the coming days, investors will be keenly following the WY and PCL securities, as well as the how the broad-based index SPDR S&P 500 Trust ETF (SPY) and its competitors like the iShares US Real Estate ETF (IYR) and iShares Residential Real Estate Capped (REZ) will react to the news of the merger.


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