BofA Securities has raised its rating for Potlatch (NASDAQ: PCH) from Neutral to Buy and increased the price target to $51 from $49.
The adjustment comes after the company's shares have seen a significant underperformance year-to-date, with a drop of over 20%.
The firm suggests that despite a current lack of fundamental catalysts, PotlatchDeltic (NASDAQ:PCH) presents an opportunity for over 20% upside potential to the new price objective.
The analyst points to the lumber market, to which Potlatch is heavily exposed, currently being at what they believe is a low point.
Lumber pricing is anticipated to have room for growth throughout the market cycle due to several factors including industry capacity reductions, tariffs, and cost-curve support. Potlatch's earnings before interest, taxes, depreciation, and amortization (EBITDA) are highly sensitive to lumber prices, with every $50 per thousand board feet (mbf) increase potentially translating to an approximate 25% boost from current levels.
The analyst also notes that Potlatch could benefit from higher lumber margins due to a more favorable cost position. This is partly attributed to the expansion of the Waldo mill, which is expected to produce an additional 85 million board feet (mnbf).
The company's timber pricing in the North, particularly in Idaho, is indexed to lumber pricing, which could further support financial outcomes as lumber prices recover.
In other recent news, PotlatchDeltic Corporation has declared a quarterly dividend of $0.45 per share, continuing its tradition of providing returns to its shareholders.
Concurrently, the company reported a significant increase in its second-quarter adjusted EBITDA, which rose to $103 million, primarily driven by robust rural real estate sales and a productive Timberlands division.
However, the Wood Products segment faced challenges due to lower lumber prices and increased processing costs.
In addition to these financial developments, PotlatchDeltic is actively exploring new opportunities in solar energy, lithium subsurface leases, and forest carbon credits.
Despite an anticipated decline in adjusted EBITDA in the third quarter due to reduced rural real estate activity, the company remains optimistic about future lumber prices and housing market fundamentals.
CEO Eric Cremers expressed optimism for potential projects next year, while CFO Wayne Wasechek showed interest in the company's future.
InvestingPro Insights
Following the upgrade by BofA Securities, a closer look at the metrics from InvestingPro provides additional context for Potlatch (NASDAQ: PCH). The company's market capitalization stands at $3.36 billion, and it is trading at a high earnings multiple with a P/E ratio of 91.77. Despite this, Potlatch maintains a notable track record of dividend reliability, having maintained payments for 54 consecutive years, with a current dividend yield of 4.23%. This could be appealing to income-focused investors, especially considering that Potlatch's liquid assets exceed its short-term obligations, which indicates a degree of financial stability.
InvestingPro Tips also reveal that while analysts have revised earnings downwards for the upcoming period, the company's management has been actively buying back shares. This action often reflects management's confidence in the company's future performance and could signal potential value to investors. Moreover, Potlatch trades at a low revenue valuation multiple, which might suggest that the stock is undervalued relative to its revenue generation.
These insights and additional InvestingPro Tips, which can be found at https://www.investing.com/pro/PCH, offer a deeper understanding of Potlatch's financial health and market position. With 12 more tips available on InvestingPro, investors can further explore the nuances of Potlatch's investment profile.
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