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080124 Deutsche Bank Report - Rayonier's 4Q in 100 Words

Deutsche Bank - Equity Research

Rayonier {Ticker: RYN, Closing Price: USD 42.05, Target Price: USD 55.00, Recommendation: Buy}.

* About in-line.  EPS net of special items of $0.45 was slightly above expectations, driven by an income tax benefit.  Pre-tax income was slightly below expectations.  DB & FC @ $0.40.  Comps: 3Q07 = $0.90, 4Q06 = $0.59.  Pos's: Performance Fibers guidance suggests that '08 will easily exceed an exceptional '07.  Neg's: In Northwest, looking for 15-20% y/y log price decline in '08.

* Timber: Still weak.  EBIT: $12MM, 3Q07 = $12MM, 4Q06 = $19MM.  Northwest prices will drop sharply in '08.  In East, issues included salvage wood from 2Q forest fire and weaker mix from more pulpwood.

* Real Estate: Low volumes, but nice prices.   EBIT: $6MM, 3Q07 = $48MM, 4Q06 = $30MM.  351 acres of development land sold at almost $17K/acre.  501 acres of rural land sold at over $5K/acre.   Excluding the big industrial sale in 3Q, '07 rural land sales averaged $3.2K/acre.

* Performance Fibers: Unplanned outage muted results.   EBIT: $40MM, 3Q07 = $43MM, 4Q06 = $33MM.  For '08, looking for CS prices up 8- 10%, AM prices up slightly, and volumes up 3-4%.  Even with cost inflation, margin expansion should be meaningful.  Medium-term concern is impact of new capacity on horizon.

* Other: (1) Wood products EBIT = $(2MM), (2) Other operations EBIT = $(2MM), (3) Guiding '08 “slightly below” the $2.35 of '07, (4) '08 capex = $105-110MM, (5) '08 DD&A = $147MM (-$16MM y/y), (6) '08 tax rate = 17-19%  ('07 was 12%).

* Change in View?   Not really.  Timber pricing looking more volatile than expected.  However, Performance Fibers running exceptionally.  RYN remains one of our favorite long-term value plays.  No change to Buy rating or $55 price target.  Boosting estimates slightly: '08 goes from $2.05 to $2.20 (1Q = $0.45) and '09 goes from $2.10 to $2.25.