"Seattle-based Plum Creek Timber (NYSE: PCL), the nation's largest private landowner with more than 8 million acres, has caught our eye," says Bill Martin.
His BullMarket.com explains, "Earnings have been stunted in recent quarters by the housing slump, but the company sports a strong balance sheet and an asset base that thanks to nature only gets larger and more valuable as time goes by."
"Plum Creek, which operates as a real estate investment trust, reported surprisingly solid Q3 profit.
"The firm postedg net income of $69 million, or 40 cents per share, for the quarter ended September 30th, compared with a profit of $59 million, or 34 cents per share, for the same period a year ago.
"In the 2007 quarter, fire losses in Montana forced the company to report a $4 million non-cash expense, or 2 cents per share, related to fire losses experienced in Montana.
"The company's EPS results topped the expectations of Wall Street analysts by a penny a share. Revenue grew to $414 million, up 2% from $407 million last year. The sales results were a bit short of the consensus of $419.8 million.
"A significant event during the quarter was the announcement of a joint venture with the Campbell Group LLC, a timber investment management group in Portland, Oregon that allowed Plum Creek to monetize roughly 454,000 acres of investment grade Southern timberlands. The JV officially closed on October 1st.
"The transaction values these timberlands at $783 million, or approximately $1,725 per acre. Plum Creek contributed the timberlands to the JV in exchange for cash. Campbell Group will manage the joint venture lands located in Oklahoma, Arkansas, Mississippi, North Carolina, South Carolina, and Georgia.
"The deal will be both earnings and cash flow accretive for Plum Creek, the company said, and allows it to immediately capture the value of these timberlands while also allowing the company to maintain an ongoing interest in their continuing cash flow growth potential.
"Plum Creek repurchased $149 million, or 3.6 million shares of its common stock, in Q3 at an average price of $41.76 each, completing a previous $200 million stock buyback program. The Board subsequently authorized another $200 million for repurchases.
"The housing slump has taken its toll on the lumber market, but the beauty of a company like Plum Creek is that its assets will only become larger and more productive if demand doesn't require them to be harvested.
"Trees will continue to do as nature intended if not cut, which means more growth for lumber when the construction market does get healthy again. Pulpwood sales, in the meantime, provide some balance to the sluggish demand for sawlogs.
"There is a lot to like about Plum Creek, not the least of which is its strong balance sheet, which features plenty of liquidity that can be used to add to its timber resources.
"Add in a $1.68 annual dividend, good for a 4.5% annual yield at current levels and the possibility of share-price gains, and Plum Creek looks like it could be a winner over the long haul."
