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What to Expect from Rayonier (RYN) This Earnings Season?

Rayonier Inc. RYN, a timberland real estate investment trust (REIT), is scheduled to report third-quarter 2017 results on Nov 1, after market close. The company’s pro forma net income per share and revenues for the quarter are expected to decline year over year.

Rayonier’s second-quarter 2017 pro forma net income per share came in at 20 cents, comfortably beating the Zacks Consensus Estimate of 11 cents. Results highlighted encouraging performance in the New Zealand Timber, real estate and trading segment, primarily due to rise in sawtimber price, strong demand from China and favorable foreign exchange movements.

Over the trailing four quarters, Rayonier beat estimates in three occasions and missed in the other, recording an average beat of 59.9%. The graph below depicts this surprise history:

Rayonier Inc. Price and EPS Surprise

Factors to Consider

Rayonier’s portfolio of timberlands enjoys geographical diversity and is located in the productive timber-producing regions of the United States. Recent developments in the field of biogenetics and cloning have significantly benefited this timberland REIT’s business.

The company is aimed at consistently monetizing higher and better uses (HBU) properties through rural land sales for enhancing its portfolio value. Additionally, the favorable demand-supply dynamics have reinforced the company’s pricing power.

However, Rayonier faces cut-throat competition in the market from national and local players. Increasing rivalry from a variety of substitute products, like non-wood and engineered wood products, is expected to thwart its operating performance in the timber segment too. This might dent the company’s operating results from the timber segment.

The Zacks Consensus Estimate of $19.90 million for operating income from the overall timber segment reflects a steep decline from the prior-quarter figure of $35 million.

Further, the Zacks Consensus Estimate for operating income from the real estate segment is currently pegged at $4.4 million. This compares unfavorably with the year-ago quarter figure of $43.10 million.     

In addition, Rayonier’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the third-quarter net income per share remained unchanged at 5 cents over the past month.

Earnings Whispers

Our proven model does not conclusively show that Rayonier will likely beat earnings estimates this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

Zacks ESP: The Earnings ESP for Rayonier is -20%.

Zacks Rank: Rayonier’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

The stock has gained 10.5% year to date, underperforming 21.2% growth recorded by the industry it belongs to.

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Extra Space Storage Inc. EXR,slated to release third-quarter earnings on Nov 1, has an Earnings ESP of +1.31% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Properties, Inc. BXP,scheduled to report its numbers on Nov 1, has an Earnings ESP of +0.5% and a Zacks Rank of 3.

Paramount Group, Inc. PGRE, set to release quarterly figures on Nov 6, has an Earnings ESP of +3.77 and a Zacks Rank of 3.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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