We See Upside for Weyerhaeuser Despite Rising Interest Rates and Lower Lumber Prices

We are initiating coverage on Weyerhaeuser with a fair value estimate of $38 per share and a no-moat rating. Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. The firm’s wood products business can be immensely profitable when demand is strong but margins crumble during times of weak demand as Weyerhaeuser’s operations possess no structural competitive advantages. Fundamentally, lumber is a commodity. Building a moat in a commodity business typically necessitates a low-cost production position or a transportation cost advantage—things Weyerhaeuser, along with its North American peers, fundamentally lack.