Investment Upgrade for Timber REITs

Investing.com – Raymond James has upgraded timber-focused REITs Weyerhaeuser Company (NYSE:WY) and PotlatchDeltic Corp (NASDAQ:PCH) from "market perform" to "outperform" due to their discounted valuations and signs of recovery in lumber market fundamentals.

The brokerage pointed out a nearly 30% discount to net asset value for both firms, along with a 12% quarter-on-quarter rise in cash lumber prices in Q4. Improved conditions in the lumber and oriented strand board markets were noted, as producers curtailed capacity amid demand challenges.

“We think the market might be throwing the baby out with the bath water in this circumstance, as the lumber markets are beginning to act decidedly more positive heading into 2025,” said Raymond James analysts, indicating that a seasonal bottom in pricing seems to have formed.

The brokerage has confidence in U.S. homebuilders’ plans for mid-to-high single-digit growth in housing completions next year, despite high mortgage rates. Furthermore, potential trade policy changes, including increased tariffs on Canadian lumber imports, may offer additional support for domestic pricing.

However, Raymond James maintained its "market perform" rating on Rayonier Inc (NYSE:RYN), citing short-term uncertainties related to its upcoming stock dividend distribution.

Despite pressure from muted demand, the timber REIT sector has seen capacity reductions totaling over 10% of North American lumber production this year, alongside stabilizing housing demand, signaling potential recovery.