Wall Street is weird.
Three months ago, when tree farmer Plum Creek Timber (NYSE:PCL) informed the SEC of its intention to issue $400 million in debt and up to $400 million more in equity from time to time, the market reacted badly. Why? Well, perhaps Plum Creek foresaw a need to raise capital in the future, for example, in order to make acquisitions of smaller timber companies or to buy new land. Truth be told, no one was quite certain what the company planned to do with the extra funds -- or even whether they would ever be raised. What's important, though, was that the company was prudently planning ahead to meet any needs that might arise, and to ensure that if an opportunistic buy sprouted up, it could harvest it right quick.
But it seems all Wall Street saw was an imminent deterioration in the company's balance sheet. Result: The company's shares fell 1% on the news.
Yesterday, Plum Creek announced that it had indeed found itself a deal it just had to have: 48,500 acres of prime Maine timber land. The company will buy that land from an as-yet undisclosed seller for an as-yet undisclosed sum. Essentially, investors know little more than they did back in August about how much debt or equity Plum Creek will actually raise. It's just become more likely (but not yet certain -- Plum Creek has more than $300 million in cash on hand already) that Plum Creek will be raising at least some cash. What's more, while we now know there's a deal in the works to spend some of that cash, we still have no idea whether the price being paid is a good one or not. Result: The stock rose 0.5% yesterday.
So yes, Virginia, Wall Street is crazy.
Regardless of the market's vagaries, however, yesterday's news is good for Fools considering dipping into Plum Creek. As fellow Fool Bill Mann pointed out back in May, the market continues to value Plum Creek as a whole at about $1,000 per acre of the land it owns. When you figure that a single good-size oak, properly cut up into hardwood flooring, can easily go for $1,000 retail, that seems a pretty low-ball valuation. But as soon as Plum Creek completes this sale, and assuming it releases further details on the purchase at that time, we should get a better idea of how much Plum Creek thinks an acre of land -- or rather, 48,500 of them -- is truly worth.
To read more about Plum Creek, consider these fine Fool articles:
- Bill Mann describes Plum Creek's value as a defensive stock against a broad market downturn, and also as a source of dividend income in both good times and bad.
- Dividend hunter and author of the Motley Fool Income Investor, Mathew Emmert, also likes Plum Creek's payouts.
Fool contributor Rich Smith owns no shares of any company mentioned in this article.
