By Andrew Bary
When it comes to lumber producer Weyerhaeuser, investors can't see the forest for the trees -- quite literally.
The 125-year-old company is the largest private owner of timberland in North America, with over 10 million acres, including valuable tracts in the Pacific Northwest, where it holds over two million acres. It also operates 33 manufacturing plants across the continent, where it produces wood products.
Weyerhaeuser stock, however, has dropped more than 20% in 2025 due to weakness in two key and now-depressed drivers of demand: new-home construction as well as renovation and remodeling activity. This has caused lumber prices to fall 20% this year, to $550 per 1,000 board feet. The shares, now around $21.50, have lost half their value since peaking in 2022, and trade where they did in the late 1990s.
Fallow periods often lead to renewal, and that is the case for Weyerhaeuser stock -- especially for investors seeking income over a long period. Shares of the Seattle-based company, which yield nearly 4%, now trade for less than the value of the timber assets Weyerhaeuser accumulated over a century, a fact that offers considerable downside protection to an already battered stock. And while Wall Street is downbeat on the housing market in 2026, that view could be too pessimistic. The stock offers massive upside if lumber and wood-products markets improve.
"In our decade-plus covering the sector, we cannot recall a period where sentiment was as pervasively negative on timber," outside a brief period during the pandemic market panic in April 2020, writes Raymond James analyst Buck Horne. He remains "constructive" on the sector due to "historic valuation discounts."
It may not look that way at first glance. Weyerhaeuser, structured as a real estate investment trust, is now operating at just above break-even based on generally accepted accounting principles, or GAAP, earnings. The company is expected to earn 17 cents a share in 2025 and 26 cents in 2026. That puts its price/earnings ratio near 100.
But high valuations in economically cyclical stocks often signal a buying opportunity because they're based on depressed earnings, which should recover. And Weyerhaeuser is capable of earning much more. It generated over $3 a share in earnings in 2021 and 2022, when lumber prices topped $1,000 per 1,000 board feet.
The stock looks far cheaper based on its net asset value. Weyerhaeuser is valued at about $2,000 per acre of its timberland based on its enterprise value of $21 billion, which combines a $16 billion equity market cap with $5 billion of net debt. That valuation is below the $2,800-an-acre price of the average timberland transaction in 2024 and 2025. The company's forests in Oregon and Washington state are particularly valuable because they produce desirable wood from Douglas fir trees.
Horne puts the company's NAV at nearly $35 a share, while RBC Capital Markets analyst Matthew McKellar estimates it at close to $39 a share, well above the current price.
That timber value calculation gives Weyerhaeuser no credit for its wood-products manufacturing plants and output. The company is the No. 2 producer of lumber in North America, the fourth-largest maker of oriented strand boards, and No. 1 in engineered wood products. Then there's its growing Natural Climate Solutions unit, which includes leasing land for solar and wind farms, generating carbon credits, and participating in carbon capture.
The company has high hopes for its climate initiatives, although their overall earnings contribution remains modest. It has targeted $100 million of earnings before interest, taxes, depreciation, and amortization, or Ebitda, from that unit this year, up from $22 million in 2020.
Weyerhaeuser has been making the most of a tough environment. It has cut costs and streamlined operations to maintain profitability. CEO Devin Stockfish said on the third-quarter conference call that the company has worked to "align our strategy with the cyclicality of the business. As a result, Weyerhaeuser is a much stronger company today than at any point in recent history."
The company likely will drive that point home when it holds an investor day on Dec. 11, its first since 2021. Management plans to offer financial targets out to 2030. A bullish McKellar, who has a price target of $30, wrote this past week that he sees a "somewhat positive risk/reward skew into the event." With sentiment so poor, he's probably right.
Weyerhaeuser takes a long-term view -- and investors should, too. The company views itself as a business, but also a steward of its vast land holdings with a limitless time horizon. "This is not for us, nor for our children, but for our grandchildren," the company's founder, Frederick Weyerhaeuser, said in the early 20th century.
That remains true today. Unlike oil and other commodities, timber isn't a wasting asset, with trees growing about 2.5% a year. Weyerhaeuser plants 100 million new trees a year and cuts just 2% of its vast forests annually. It amounts to a giant carbon sink -- likely the largest in the country. One of timber's great selling points, its renewable nature, also means wood is less likely to be in persistently tight supply. It's possible Weyerhaeuser could attract an activist investor who might push the company to be more aggressive on land sales, and use the proceeds to buy back stock.
No matter how value is unlocked, investors are getting paid to wait. Weyerhaeuser now pays an 84-cent annualized base dividend, resulting in a nearly 4% yield. Weyerhaeuser says the base dividend is sustainable "even at the bottom of the cycle." This year, Weyerhaeuser is expected to generate about 80 cents a share in funds available for distribution, or FAD, a REIT cash-flow measure. The company aims to pay out 75% to 80% of its FAD to shareholders each year in dividends -- both regular and special -- and stock repurchases, while boosting its base payout by 5% annually. It has bought back a modest $150 million of stock so far this year -- about 1% of the market cap.
Time is on Weyerhaeuser's side. America needs more housing, and home-building will eventually recover -- and so will the stock. This tree doesn't have to grow to the sky for it to work for investors.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 05, 2025 08:00 ET (13:00 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments