D.A. Davidson Goes Neutral On Potlatch As Shares Near Price Target

Potlatch Corporation (NASDAQ: PCH) reported its 2Q16 results, with the adjusted EPS ahead of the estimate.

D.A. Davidson’s Steven Chercover downgraded the rating on the company from Buy to Hold, with a price target of $40.

2Q Results

Apart from the EPS beat, Potlatch reported GAAP net loss of $0.77, driven by an after-tax loss of $36.7 million on the Central Idaho land sale.

“While we thought there might be some upside in the Wood Products segment, thanks to a run-up in Lumber prices, a capital project at the Warren, AR sawmill crimped results by $3 million, and instead, upside was propelled primarily by the Resources segment,” Chercover mentioned.

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Management expects 3Q16 to see normal seasonal ramp. The full-year estimates have been raised modestly following the 2Q beat and improving outlook or the Wood Products segment.

Capital Allocation

“In the quarter, PCH closed the $114 million Idaho land sale and used the proceeds to redeem $42.6 million of 5.9 percent revenue bonds due October 2026, which should reduce annual interest expense by $2.5 million,” according to the D.A. Davidson report.

Potlatch also announced a $65.7 million refinancing of its existing 6 percent debt to cut the interest rate in half. This is expected to lead to another $2 million reduction in the annual interest expense.

Following the share buybacks in 2Q, Chercover mentioned that 90 percent of the authorization was still outstanding, which is likely to be a near term priority for excess capital.

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