Weyerhaeuser Company Analysis – August 2015 Update $WY
REITs often attract a great deal of investors because of their strong cash flows and dividends, and those investors often overlook other parts of the business, choosing to analyze the company under a different set of criteria than companies in other sectors.  This can create a problem in that it becomes difficult to compare a REIT to an industrial, which is fine if you use the typical top-down approach to stock selection; however, a top-down approach invites speculation in the fact that you are theorizing which sector will perform well going forward.  Benjamin Graham taught that we should avoid speculation as much as possible, which is why it is critical to develop a system for analyzing companies that will allow them to be compared across industries.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another investment opportunity.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Weyerhaeuser Company (WY) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Weyerhaeuser Company is a real estate investment trust (REIT). The Company is an owner of timberlands. It is principally engaged in growing and harvesting timber, as well as manufacturing, distributing and selling products made from trees. The Company owns nearly 7 million acres of timberlands, primarily in the United States, and manages additional timberlands under long-term licenses in Canada. It is engaged in the manufacturing of wood and specialty cellulose fibers products. The Company’s operational segments include Timberlands, Wood Products and Cellulose Fibers. The Company’s Timberlands segment manages approximately 6.9 million acres of private commercial timberlands across the world. The Wood Products segment manufactures and distributes wood products primarily in North America and Asia. The Cellulose Fibers segment is involved in the production of absorbent fluff pulp used in products, such as diapers.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | |||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | |
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | |
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | Fail | |
| Score | |||
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | |||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | |
| 4. Dividend Record | Currently Pays Dividend | Pass | |
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | |
Stage 2: Determination of Intrinsic Value
| EPSmg | 1.49 |
| MG Growth Estimate | 10.05% |
| MG Value | $42.51 |
| Opinion | Undervalued |
| MG Value based on 3% Growth | $21.56 |
| MG Value based on 0% Growth | $12.64 |
| Market Implied Growth Rate | 6.24% |
| Current Price | $31.19 |
| % of Intrinsic Value | 73.37% |
Weyerhaeuser Company qualifies for the Enterprising Investor but is not suitable for the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.89 in 2011 to an estimated $1.49 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.24% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Weyerhaeuser Company (WY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$10.47 |
| PEmg | 20.98 |
| Current Ratio | 2.74 |
| PB Ratio | 3.29 |
| Dividend Yield | 3.72% |
| Number of Consecutive Years of Dividend Growth | 5 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Total Current Assets | $2,517,000,000 |
| Total Current Liabilities | $919,000,000 |
| Long-Term Debt | $5,402,000,000 |
| Total Assets | $12,883,000,000 |
| Intangible Assets | $40,000,000 |
| Total Liabilities | $7,958,000,000 |
| Outstanding Shares | 519,804,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $0.94 |
| Dec14 | $3.18 |
| Dec13 | $0.95 |
| Dec12 | $0.71 |
| Dec11 | $0.61 |
| Dec10 | $3.99 |
| Dec09 | -$0.96 |
| Dec08 | -$2.06 |
| Dec07 | $1.33 |
| Dec06 | $0.68 |
| Dec05 | $1.10 |
| Dec04 | $2.01 |
| Dec03 | $0.46 |
| Dec02 | $0.40 |
| Dec01 | $0.60 |
| Dec00 | $1.38 |
| Dec99 | $0.94 |
| Dec98 | $0.54 |
| Dec97 | $0.63 |
| Dec96 | $0.86 |
| Dec95 | $1.45 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $1.49 |
| Dec14 | $1.80 |
| Dec13 | $1.10 |
| Dec12 | $0.93 |
| Dec11 | $0.89 |
| Dec10 | $0.89 |
| Dec09 | -$0.44 |
| Dec08 | $0.09 |
| Dec07 | $1.14 |
| Dec06 | $1.01 |
| Dec05 | $1.09 |
| Dec04 | $1.04 |
| Dec03 | $0.63 |
| Dec02 | $0.73 |
| Dec01 | $0.87 |
| Dec00 | $0.96 |
| Dec99 | $0.80 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.
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