Can Weyerhaeuser Continue Its Rise?

Timber REIT Weyerhaeuser's (NYSE: WY  ) stock is booming, hitting a 52-week high despite slow growth from a rebounding housing market. While long-term shareholders of this century-old company have reaped bountiful profits from the trend, will Weyerhaeuser keep giving investors more of what they want -- or is it headed for a downturn?

Riding the coattails of housing
The long-awaited rebound of the housing market has contributed to Weyerhaeuser's rising fortunes. 

Of the company's four business segments -- timber, wood products, cellulose fibers, and real estate -- only the smaller real estate segment didn't enjoy year-over-year revenue gains in 2011. Overall revenue has held steady so far in 2012, and analysts expect it to continue growing in the high-single-digits for the next couple of years. With new home starts up 17% this year from 2011, investors can have confidence in growing demand for wood products.

It's not just the macroeconomic environment that should please shareholders. Management consolidated the corporation's holdings during its conversion to REIT status in 2010 and sold off numerous business units. While such necessary moves hammered the stock from 2008 to 2010, Weyerhaeuser emerged from the recession focused around its core business units and ready to rise again.

A financial mixed bag
It's best to compare the company's statistics against its peers in the logging and timber industry.

Company

Price/Book

Debt/Equity

Dividend Yield

Return on Equity

Weyerhaeuser 3.1 106.6 2.6% 7.2%
Plum Creek Timber (NYSE: PCL  ) 5.4 239.4 4.2% 13.9%
Potlatch (Nasdaq: PCH  ) 10.9 264.5 3.7% 21.8%
Rayonier (NYSE: RYN  ) 4.3 74.9 3.7% 21.3%

Source: Yahoo! Finance.

Of these four timber REITs, Weyerhaeuser starts to look vulnerable. Although investors should relish the low valuation and manageable debt load compared to its peers, the company's low dividend -- especially for a REIT -- and return on equity (considerably lower than its competitors) should raise a few eyebrows.

Overall, investors may want to take a cautious approach to investing in Weyerhaeuser. The company should perform well with a rebounding housing market and growing demand for wood products, but cautious investors could probably find stronger offerings. Timber rival Rayonier sports exceptional financial stats and a dividend that considerably beats Weyerhaeuser's, appealing to value and income investors alike.

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Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. The Motley Fool owns shares of Weyerhaeuser. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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