Industry Reports

Deutsche Bank Reports Summaries

071218 Deutsche Bank Report – Weyerhaeuser One Step Closer

Deutsche Bank - Equity Research

Weyerhaeuser {Ticker: WY, Closing Price: USD 70.78, Target Price: USD 95.00, Recommendation: Buy}.

* US Senate passes the "Tree Act"

While the bill has yet to work its way through conference and into law, the prospects appear constructive.  WY has suggested that the bill could prove accretive to the tune of $150+MM/yr.  We maintain our Buy rating and $95 price target based on our view of asset value.

* The debate over WY's corporate structure will continue

The bill reduces, but does not eliminate, the tax disadvantages of owning timberland in a C-corp.  Moreover, we think WY will continue to trade at a valuation discount to timber REITs like Plum Creek.  The discount would reflect the presence of WY's non-timber businesses as well as uncertainty about how WY manages/distributes cash generated by its timberlands.

* The bottom line?

While enactment of the “Tree Act” would create clear & significant value for Weyerhaeuser shareholders, we don't think it represents the final word on the firm's corporate structure.  We think the firm must continue to joint-venture/divest underperforming manufacturing businesses and move toward segregating its timberland operations. 

* Valuation/Risk

Our $95 price target is based primarily on our asset valuation. We have tempered our price target slightly to account for the cyclical pressures that are currently taking earnings significantly below normalized levels. The primary risks involve execution risk in WY's transformation strategy. WY also faces economic risk & interest rate risk, since industrial activity levels influence demand for packaging grades, and the housing market affects both real estate and wood products.