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Summary

  • The company plans to split itself up during the middle of 2014, and this action should provide value for shareholders.
  • The company is expected to have an earnings contraction next year.
  • The financial ratios are deteriorating.

The last time I wrote about Rayonier Inc. (NYSE:RYN), I stated:

"Because of the overbought technicals, contraction in earnings for next year, and fair valuations, I will not be adding to my position at this point in time." Since the time the article was published, the stock dropped 3.48% versus the 0.3% gain the S&P 500 (NYSEARCA:SPY) posted. Rayonier is compared to real estate investment trusts and is an international forest products company primarily engaged in activities associated with timberland management, the sale and entitlement of real estate, and the production and sale of specialty cellulose fibers and fluff pulp.

On January 27, 2014, the company reported fourth quarter earnings of $0.62 per share, which beat the consensus of analysts' estimates by $0.12. In the past year, the company's stock is down 23.83%, excluding dividends (down 19.86% including dividends), and is losing to the S&P 500, which has gained 18.85% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the industrial sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.89, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 20.65 is currently fairly priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $2.2 per share while the trailing twelve month earnings per share were $2.54. The 1-year PEG ratio (1.32), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.51%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.51%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

03Mar14

47.09

18.47

21.39

2.20

33

1.37

13.51

04Apr14

45.45

17.89

20.65

2.20

33

1.32

13.51

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.31% with a payout ratio of 77% of trailing 12-month earnings while sporting return on assets, equity and investment values of 10.2%, 23.4% and 11.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.31% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

03Mar14

4.16

77

16.7

38.3

11.6

04Apr14

4.31

77

10.2

23.4

11.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle-ground territory with a value of 52.27 and downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum is getting tired. As for the stock price itself ($45.45), I'm looking at $46.99 to act as resistance and $44.45 to act as support for a risk/reward ratio which plays out to be -2.2% to 3.39%.

Recent News

  1. The company is due to spin off its performance fibers unit by the middle of this year. I've participated in several breakup plays in the past and they have been pretty bountiful. I expect this one to be much of the same.

Conclusion

Fundamentally, Rayonier is fairly valued on next year's earnings and on next year's earnings growth potential. The company has great one-year earnings growth potential, but next year's estimated earnings are expected to be less than the trailing twelve months earnings. Financially, the dividend is ample and is well supported by earnings but the financial ratios are deteriorating. Technically, it appears the stock can experience downward momentum right but I would expect a run-up in the stock price before the split occurs. Due to deteriorating financial ratios, bearish technicals, and fair valuation based on next year's earnings I will not be pulling the trigger on this name right now.

Because I swapped out L-3 Communications Holdings, Inc. (NYSE:LLL) for Rayonier in my dividend portfolio it is only fair that I provide an update from the swap-out date. From 25Feb14, Rayonier is down 1.28% while L-3 is up 0.03% and the S&P 500 is up 0.95%. My change out is not doing too hot right now, but I'm playing this for the split. We'll take a look after the split and see what happens.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long RYN, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Rayonier Yields 4.31%, But Is It A Buy?