WY - Embedded Expectations Analysis - 2019 06 28
Weyerhaeuser Company (WY:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Assets, with a 1.9x Uniform P/B. At these levels, the market has somewhat bullish expectations for the firm, but management has concerns about new home sales, freight costs and timing, and inclement weather-related pricing pressure.Specifically, management may be concerned about the rate of new home sales, West Coast demand, and the impact of tariffs on their export business. Also, they may lack confidence in their ability to sustain permit activity, generate healthy cash flow, and ramp-up their new sawmills. Furthermore, they may be concerned about freight costs, the timing of export shipments, and pricing tension in markets impacted by inclement weather. Finally, they may lack confidence in their ability to improve Wood Products business's EBITDA margin.
Weyerhaeuser is a real estate investment trust. The company's business segments are: Timberlands, which provides delivered logs (grade logs and fiber logs), timber, recreational leases and other products; Real Estate, Energy and Natural Resources (ENR), in which Real Estate sells timberland tracts for recreational, conservation, commercial or residential purposes, whereas ENR sells rights to explore, extract and sell construction aggregates (rock, sand and gravel), industrial materials and oil and natural gas; and Wood Products, which provides structural lumber, oriented strand board, wood products, other products, and complementary building products.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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