Catalysts That Make Rayoneir (RYN) A Buy

By Yaser Anwar, CSC of Equity Investment IdeasOn October 23rd, I highlighted Rayoneir for its timberland assets. Since then the stock has barely moved & is still attractive. Here’s why:Rayonier owns 1.6 million acres of timberland in the southeastern US. University of Florida’s Food and Resource Economics Department, which issues the annual land-value survey, Timberland in Northeast Florida is worth $3,864 per acre. RYN also owns about 400K acres in Pacific Northwest, which at $2K an acre would be worth $800 million.Right now, RYN has a market cap of $3.1bn, whereas I’ve calculated liquidation value of it’s 1.6 mil acres at 3K/acre= $4.8 billon. Let’s timber will fall in price so- 1.6mil acres at $2500/acre= $4billion. That’s ignoring all it’s other businesses and land in Australia and New Zealand.The reason I believe the Street is valuing the stock like that:1) RYN has no earnings leverage to commodity paper prices, hence if paper prices were to rally, Rayonier could underperform its paper-heavy peers.2) The Street is valuing Rayonier at roughly $2K per US acre, assuming its international operations in Australia & New Zealand, real estate, and paper mills are worthless.3) As of late, housing starts are falling, which positively correlate with lumber futures/prices. Similarly, Lumber & Timber have a positive correlation. Hence, if housing market dwindles so does lumber & timberland. Hence the cheaper valuation.4) RYN’s exposure to Florida & portfolio of properties close to the beach in the southeastern (hurricane fears, which now seem to be subdued).5) On Oct. 25th, management’s outlook was mediocre (at least according to me). RYN expects 4th Q results to be less than the 3rd Q due to a drop in real estate sales.I recommend getting into TOL back when it reported in August (24 then 28 now) because in my opinion the time to rotate back into housing and timber REITS/stocks is before the next Fed cut.Yesterday HD rose even after it lowered guidance and missed estimates by 2 cents, because the street believed the next Fed move will be to cut rates.In closing, I believe timber is a great investment. Why? From 1972-2001, an investor in timber saw average annual returns of over 14.5%. In other words, if you had invested $10,000 in timber in 1972, you’d be sitting on over half a million dollars right now .And the best stock to make it with is RYN. Why? Due to the stable business, long-term outperformance of timber, attractive properties, almost 5% dividend yield & most importantly- The valuation. RYN trades at a 20% EV/EBITDA discount to PCL & as I mentioned in the last post, I believe it’s (timber) land is also undervalued.

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