Company Reports

No-moat Weyerhaeuser reported first-quarter results that came mostly as we expected. Net sales declined 4.5% year over year as the wood products and timberland segments both saw declines. Weyerhaeuser and its competitors continue to navigate a challenging environment for wood products in North America due to a stagnant housing market and soft repair and remodel activity. Additionally, export markets remain pressured, especially in China, where demand was muted in the first quarter. That said, we expect growth in both single-family housing starts and repair and remodel markets in 2024, which should drive demand for both lumber and engineered wood products. We have maintained our $35 fair value estimate, as an increase from the time value of money was offset by slightly lower wood-product volumes in our forecast.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The company operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of revenue in 2023 (85% in US and 7.5% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

No-moat-rated Weyerhaeuser reported fourth-quarter results that were largely in line with our expectations. Weyerhaeuser navigated a challenging year as high interest rates constrained housing markets and weighed on lumber demand. Some of that weakness carried over to the fourth quarter as net sales declined roughly 2.5% year over year, while operating margins expanded 300 basis points to 15.7%, largely due to strength in the timberlands segment. Despite some end market improvements in the fourth quarter, Weyerhaeuser will have to navigate a tricky demand environment and ample industry supply in 2024. We've increased our fair value estimate to $35 per share from $34 due to the time value of money.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The company operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of revenue in 2022 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

No-moat-rated Weyerhaeuser reported somewhat underwhelming third-quarter results as the company continued to navigate a challenging operating environment. Net sales fell over 11% year over year as the wood product and timberland segments recorded double-digit declines. The company's consolidated operating margins decreased roughly 250 basis points from a year ago to 17.5% but improved again sequentially due to solid performance in the wood products business. Nevertheless, Weyerhaeuser faces a difficult fourth quarter as higher mortgage rates constrain housing markets and limit demand for wood products. As such, we've decreased our fair value estimate to $34 from $35 due to our expectation of lower wood product volumes through 2023 than we had previously anticipated.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The company operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of revenue in 2022 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

No-moat-rated Weyerhaeuser reported solid second-quarter results given the current lumber market. Revenue fell almost 33% year over year as its wood products and timberland businesses both experienced double-digit declines. Weyerhaeuser’s consolidated operating margins decreased roughly 400 basis points from a year ago to 16% but improved sequentially due to a strong demand for engineered wood products. Weyerhaeuser now faces a challenging second half of the year as rising interest rates continue to pressure housing markets and lumber demand. Nevertheless, we maintain our $35 fair value estimate.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The company operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of sales in 2022 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

Weyerhaeuser reported first-quarter results that came with few surprises as lower lumber prices weighed heavily on its wood products business despite relatively stable production volumes. Revenue declined 40% year over year as weakness in Weyerhaeuser’s wood products business offset a solid quarter from the timberlands segment. Additionally, Weyerhaeuser reported a 12.5% consolidated operating margin, a steep decline compared with its 43% margin a year ago. We've decreased our fair value estimate to $35 from $38 due to our expectation of lower lumber prices through 2023 than we had previously anticipated.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The firm operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of sales in 2022 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

No-moat-rated Weyerhaeuser reported fourth-quarter results that were largely in line with our expectations. Softening housing demand in the United States and falling lumber prices in the fourth quarter led to a decline in Weyerhaeuser’s financial results. Revenue declined 17% year over year, with much of the decline concentrated in the company’s wood products business. Consolidated operating margins dropped over 1,400 basis points from a year ago to 12.7% due to a decline in lumber prices, lower production volumes, and higher unit manufacturing costs.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The firm operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of sales in 2021 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

After analyzing recent United States housing market data and industry commentary, we've made downward revisions to our near-term outlook for new residential construction, home prices, and repair and remodel spending.

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.

Weyerhaeuser is one of the world’s largest forest product producers and is the largest private timberland owner in North America. Weyerhaeuser is a real estate investment trust, or REIT, and distributes its REIT income to shareholders without having to pay corporate level incomes taxes. The firm operates with significant wood product production capacity in Canada and the United States. Homebuilding, remodeling, and construction are the main uses of softwood lumber and engineered wood products in North America. Weyerhaeuser is closely tied to the North American market as it accounted for over 90% of sales in 2021 (85% in U.S. and 7% in Canada). As price-takers, Weyerhaeuser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.