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There are a great number of different industries in the world, but not many have been around as long as the forestry industry. One quality of the industry is that there will be demand for wood for at least the foreseeable future, and as long as companies are prudent about replanting trees, the resource is renewable over time. However, Intelligent Investors need to compare potential investments across industries, in order to determine which is the greatest opportunity for profit. By using a ModernGraham analysis, one can maintain a systematic analysis across companies and even industries to easily compare one potential investment's risk level and opportunity for value against another potential investment. What follows is a specific look at how Weyerhaeuser Company fares in the ModernGraham valuation model.

Defensive and Enterprising Investor Tests:

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - FAIL
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

MG Value$44.12
MG OpinionUndervalued
Value Based on 3% Growth$16.62
Value Based on 0% Growth$9.74
Market Implied Growth Rate8.92%
Net Current Asset Value (NCAV)-$12.45
PEmg26.34
Current Ratio2.30
PB Ratio2.89

Balance Sheet - 9/30/2013

Current Assets$2,275,000,000
Current Liabilities$987,000,000
Total Debt$6,084,000,000
Total Assets$15,609,000,000
Intangible Assets$42,000,000
Total Liabilities$9,531,000,000
Outstanding Shares582,580,000

Earnings Per Share

2013 (estimate)$1.11
2012$0.71
2011$0.59
2010$3.99
2009-$0.95
2008-$3.19
2007$0.09
2006$0.53
2005$0.87
2004$2.01
1999$0.48

Earnings Per Share - ModernGraham

2013 (estimate)$1.15
2012$0.85
2011$0.65
2010$0.49
2009-$1.02
2008-$0.68

Conclusion:

Weyerhaeuser Company intrigues me personally because of a life-long love of wood products and trees in general, but that alone is not a solid reason to invest. The company currently does not pass the requirements of either the Defensive Investor or the Enterprising Investor, though it should be noted that the company will qualify for the Enterprising Investor next year if it demonstrates positive earnings in 2014. The Defensive Investor does not like the company because of the lack of earnings stability or growth over the ten year period, and the high PEmg and PB ratios. As a result, Enterprising Investors should keep the company on their watch lists as they review other opportunities by looking at companies that currently pass the ModernGraham requirements.

From strictly a valuation perspective, the company looks very attractive after growing EPSmg (normalized earnings) in the short term from -$1.02 in 2009 to an estimated $1.15 for 2013. This level of growth is stronger than what the market is currently implying, and the ModernGraham valuation model indicates the company may be undervalued at the present time.

What do you think? What value would you put on Weyerhaeuser Company (WY)? Is there a company you like better?

Disclosure: The author did not hold a position in Weyerhaeuser Company (WY) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Annual Valuation Of Weyerhaeuser Company