Citi analysts reiterate buy rating on Potlatch stock

On Friday, Citi analysts maintained a Buy rating on Potlatch stock (NASDAQ: PCH) with a price target of $47.00. The decision comes amid expectations of increased import duties on Canadian lumber, anticipated by August. Industry peer Weyerhaeuser (NYSE: WY), a prominent player in Specialized REITs with a remarkable 55-year dividend payment streak according to InvestingPro, is also positioned to benefit from these market dynamics.

Potlatch and Weyerhaeuser stocks showed strong performance in the first quarter, driven by the anticipation of tariffs on Canadian lumber. While these tariffs did not take effect on Liberation Day, leading to a decline in stock performance since early April as lumber prices fell by $52 per thousand board feet to $438 per thousand board feet, Weyerhaeuser maintains solid fundamentals with a current ratio of 2.04 and moderate debt levels.

Recent discussions at the Nareit conference suggest stable demand and lean inventories, presenting a favorable outlook for lumber. The anticipated rise in import duties from 14.5% to 34.5% could lead to a $90 per thousand board feet increase in lumber prices, assuming current levels.

While Canadian producers might absorb some of the increased costs, most of the burden is expected to be passed on, given British Columbia’s production cash costs of over $450 per thousand board feet. Section 232 investigations could introduce an additional 10-25% tariff, potentially increasing prices further.

In other recent news, Weyerhaeuser Company (NYSE:WY) has announced a $375 million acquisition of approximately 117,000 acres of timberland in North Carolina and Virginia from Roanoke Timberlands LLC. This strategic move is expected to enhance the company’s Southern Timberlands portfolio and contribute to substantial cash flows. In a separate development, Weyerhaeuser has agreed to sell its Princeton, British Columbia sawmill to Gorman Group for approximately C$120 million (US$86 million). This sale is part of Weyerhaeuser’s efforts to optimize its operations and improve its financial flexibility.

Citi analysts recently adjusted their outlook for Weyerhaeuser, lowering the stock price target to $31 from $35 due to demand concerns but maintaining a Buy rating. Meanwhile, Argus maintained a Hold rating, citing challenges tied to the economic climate and high borrowing costs affecting the housing market. DA Davidson also reiterated a Buy rating, with a price target of $36, expressing confidence in Weyerhaeuser’s strategic direction despite the sale of the Princeton sawmill.

Weyerhaeuser’s earnings are heavily influenced by its Wood Products segment, which has faced challenges due to a downturn in new-home construction. The company’s dividend yield currently stands at 3.3%, below the peer average, following adjustments in dividend payments. These developments reflect Weyerhaeuser’s ongoing efforts to navigate market dynamics and strengthen its position in the timber industry.

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