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Why Rayonier Advanced Materials Stock Jumped 11% at the Open Today

By Reuben Gregg Brewer – Updated Oct 20, 2020 at 11:06AM

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Shares of the specialty paper products company surged, but it wasn't anything it did.

What happened

Shares of Rayonier Advanced Materials (RYAM -1.20%), which makes high-purity cellulose specialty products, rose an impressive 11.7% in the first half hour of trading on Oct. 20. By 10 a.m. EDT, however, the price had pulled back to around 6.5%. There were no material updates from the company, but one Wall Street investment house revised its view of the stock.

So what

RBC Capital Markets upped Rayonier from sector perform, which is basically a hold rating, to outperform. As investors often do, they took that research house update as a reason to buy the stock. The problem here is that the company isn't exactly hitting on all cylinders. 

A pile of logs in a forest

Image source: Getty Images.

For example, when it reported second-quarter earnings in August, Rayonier lost $0.20 per share. While an improvement over the loss of $0.38 per share in the same prior-year period, it was still not a great number. Management highlighted COVID-19 as a headwind, but the truth is Rayonier has posted red ink in five of the last six quarters. While the pandemic is an issue, there's more going on here. Notably, management highlighted reworking its bank debt covenants in the 2Q earnings release. That's usually not something a company looks to do unless there's a problem.  

Now what

Long-term investors may, indeed, like the outlook for Rayonier, which has a unique focus on wood products used across many industries (cellulose is basically just fluffed-up wood). However, the company's recent financial performance shows that investors need to dig into the story behind Wall Street upgrades and downgrades before making an investment decision. In fact, by 10:30 a.m., the initial excitement appeared to have played out, with the stock basically flat for the day.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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