Critical Analysis: Weyerhaeuser (WY) versus Potlatch Corporation (PCH)

Weyerhaeuser (NYSE: WY) and Potlatch Corporation (NASDAQ:PCH) are both construction companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, valuation, dividends, risk, profitabiliy, analyst recommendations and institutional ownership.

Volatility & Risk

Weyerhaeuser has a beta of 1.41, meaning that its share price is 41% more volatile than the S&P 500. Comparatively, Potlatch Corporation has a beta of 1.41, meaning that its share price is 41% more volatile than the S&P 500.

Dividends

Weyerhaeuser pays an annual dividend of $1.24 per share and has a dividend yield of 3.6%. Potlatch Corporation pays an annual dividend of $1.50 per share and has a dividend yield of 3.2%. Weyerhaeuser pays out 85.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Potlatch Corporation pays out 223.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Potlatch Corporation has increased its dividend for 5 consecutive years. Weyerhaeuser is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Weyerhaeuser and Potlatch Corporation, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Weyerhaeuser	1	3	5	1	2.60
Potlatch Corporation	2	6	0	0	1.75

Weyerhaeuser currently has a consensus price target of $36.38, indicating a potential upside of 6.58%. Potlatch Corporation has a consensus price target of $43.25, indicating a potential downside of 9.04%. Given Weyerhaeuser’s stronger consensus rating and higher probable upside, analysts plainly believe Weyerhaeuser is more favorable than Potlatch Corporation.

Earnings and Valuation

This table compares Weyerhaeuser and Potlatch Corporation’s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	EBITDA	Earnings Per Share	Price/Earnings Ratio
Weyerhaeuser	$6.67 billion	3.85	$1.64 billion	$1.45	23.54
Potlatch Corporation	$620.88 million	3.11	$133.21 million	$0.67	70.97

Weyerhaeuser has higher revenue and earnings than Potlatch Corporation. Weyerhaeuser is trading at a lower price-to-earnings ratio than Potlatch Corporation, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Weyerhaeuser and Potlatch Corporation’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Weyerhaeuser	16.58%	6.22%	2.83%
Potlatch Corporation	4.46%	42.10%	6.95%

Institutional and Insider Ownership

76.6% of Weyerhaeuser shares are owned by institutional investors. Comparatively, 83.3% of Potlatch Corporation shares are owned by institutional investors. 1.3% of Weyerhaeuser shares are owned by insiders. Comparatively, 1.5% of Potlatch Corporation shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Summary

Weyerhaeuser beats Potlatch Corporation on 11 of the 17 factors compared between the two stocks.

About Weyerhaeuser

Weyerhaeuser Company is a timber, land and forest products company. As of December 31, 2016, the Company owned or controlled 13.1 million acres of timberlands, primarily in the United States, and manages additional timberlands under long-term licenses in Canada. The Company’s segments include Timberlands; Real Estate, Energy and Natural Resources (Real Estate & ENR), and Wood Products. The Timberlands segment’s offerings include logs, timber and recreational access via leases. The Real Estate & ENR segment includes sales of timberlands; rights to explore for and extract hard minerals, oil and gas production, and coal, and equity interests in its Real Estate Development Ventures. The Wood Products segment includes the manufacturing and distribution of wood products. The Wood Products segment is engaged in softwood lumber, engineered wood products, structural panels, medium density fiberboard and building materials distribution.

About Potlatch Corporation

Potlatch Corporation is a real estate investment trust (REIT), which is primarily engaged in activities associated with timberland management, including the sale of timber, management of timberlands, and purchase and sale of timberlands. The Company is also engaged in the manufacture and sale of wood products. It operates through three segments: Resource, Wood Products and Real Estate. Its primary objectives include using its timberland investments to generate income and maximizing the long-term value of its assets. Its Resource segment manages its timberlands. Its Wood Products segment manufactures and markets lumber, plywood and residual products at mills located in Arkansas, Idaho, Michigan and Minnesota. The activities of its Real Estate segment consist primarily of the sale of non-core timberlands in the categories of higher and better use (HBU), rural recreational real estate and non-strategic properties.