Did Rayonier Inc. (RYN) Maintain a Strong Financial Performance in Q1?

We recently compiled a list of the 10 Best Land and Timber Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Rayonier Inc. (NYSE:RYN) stands against the other land and timber stocks.

The land and timber industry supports various sectors such as construction, furniture manufacturing, and paper production. The industry is forecasted to be worth $342.55 billion in 2024 and is projected to reach $464.94 billion by 2029, reflecting a healthy compound annual growth rate (CAGR) of 6.3%. In fact, The World Bank predicts that the push for net zero emissions by 2050 could quadruple global timber demand.

This growth is fueled by a rising preference for wooden buildings as compared to concrete buildings since wooden construction produces very little waste and saves time. Moreover, concerns regarding CO2 emissions by the construction industry, which make up 36% of total emissions globally, have led to the adoption of timber in place of steel and concrete. This is because timber's role as a low-carbon alternative in construction helps decarbonize the industry. Furthermore, wood's natural ability to absorb CO2 makes it a more sustainable solution for the construction industry.

In addition to construction, timber is also used for wood fuel and industrial purposes. Around 90% of wood is used for fuel in Africa, Asia, and South America primarily, while 90% of wood in North America and 80% in Europe is utilized for industrial purposes.

The skyrocketing demand for timber raises a critical question: how can we ensure a long-term supply? Unlike fossil fuels, trees are renewable, but their growth is slow and takes 30 to 100 years. Sustainable practices rely on establishing new plantations, but finding suitable land is becoming difficult due to competition from other uses. Currently, most timber comes from natural forests: softwoods in the north and hardwoods in the south. However, this reliance is unsustainable.

Although plantations make up only 3% of the world's forests, they already provide about 50-60% of timber production. With the increasing demand for timber comes the responsibility to practice environmental stewardship. According to the Managing Director of Forestry at Gresham House, relying on well-managed plantations is needed for a sustainable timber supply. Certification programs like the Forest Stewardship Council (FSC) can help ensure responsible forest management, protecting biodiversity and ecological functions.

Over 200 million hectares of global forests are FSC-certified, demonstrating a growing commitment to sustainability within the industry. This number is expected to reach 300 million hectares by 2026. Moreover, consumers' growing preference for certified wood products is driving the demand for responsibly sourced timber. Another solution for balancing the growing demand for timber products with sustainable forest management practices is investment in reforestation. Initiatives like the Bonn Challenge aim to restore 350 million hectares of degraded land by 2030.

Our Methodology

To shortlist the best land and timber stocks to buy according to hedge funds, we relied on Insider Monkey’s extensive database of 920 hedge funds as of Q1 2024. We picked the land and timber stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Aerial view of Timberland Real Estate Investment Trust's woodlands in the U.S. South and Pacific Northwest.

Rayonier Inc. (NYSE:RYN)

Number of Hedge Fund Holders: 27

Rayonier Inc. (NYSE:RYN), is a major player in the timberland real estate investment trust (REIT) market. The company owns valuable assets in prime locations for growing softwood timber across the U.S. South, Pacific Northwest, and New Zealand. As of December 31, 2023, the firm’s substantial holdings totaled roughly 2.7 million acres. This includes 1.85 million acres in the U.S. South, 418,000 acres in the U.S. Pacific Northwest, and 421,000 acres in New Zealand.

Rayonier Inc.’s (NYSE:RYN) first-quarter earnings report revealed that, excluding legal settlements and pension charges, adjusted pro forma net income increased to $7.0 million or $0.05 per share, up from $1.1 million or $0.01 per share in the same quarter of the previous year.

Furthermore, Rayonier Inc. (NYSE:RYN) maintained strong financial performance with an operating income of $16.2 million and Adjusted EBITDA of $56.2 million. Cash flow also remained positive at $52.3 million.

Two Wall Street analysts have offered 1-year price targets for Rayonier Inc. (NYSE:RYN), averaging $34. This suggests a potential upside of 12.9% from the current stock price.

Here’s what Third Avenue Management said about Rayonier Inc. (NYSE:RYN) in its Q4 2023 investor letter:

“Asset Sales: Rayonier Inc. (NYSE:RYN) (a U.S.-based Timber Real Estate Investment Trust or “REIT”) announced the disposition of 55k acres of timberlands in Oregon for $242 million, implying $4.4k per acre, or more than two times the implied value per acre for Rayonier’s portfolio based upon the recent stock price. Rayonier’s management team has also indicated that it plans to sell another $750 million of timberlands within the next 18 months to further reduce debt levels and return excess capital to shareholders given the price-to-value discrepancy.”

Overall RYN ranks 6th on our list of the best land and timber stocks to buy. You can visit 10 Best Land and Timber Stocks to Buy According to Hedge Funds to see the other land and timber stocks that are on hedge funds’ radar. While we acknowledge the potential of RYN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RYN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.