WY Sells Railroad Assets to Patriot - Analyst Blog

Weyerhaeuser Co. (WY) recently sold off its six short line railroads to Patriot Rail Corp, a privately-held short line and regional freight railroad holding company. The transaction was made effective from December 30, 2010.

The assets under consideration, operate over 160 miles of track in four states and annually handle roughly 60,000 carloads of freight. Main customers include Weyerhaeuser and International Paper mills and a number of third-party customers while prime commodities comprise wood and paper products, chemicals, industrial waste, minerals and agricultural products.

The six railroads include the DeQueen and Eastern Railroad (DQE); the Texas, Oklahoma & Eastern Railroad (TOE); the Columbia & Cowlitz Railway (CLC); the Patriot Woods Railroad (PAW); the Golden Triangle Railroad (GTRA); and the Mississippi & Skuna Valley Railroad (MSV).

Weyerhaeuser, in addition to the railroads, sold off its 28 locomotives, over 300 railcars, 2,500 leased railcars, 50 motor vehicles, right-of-way real estate, general office buildings, maintenance of way equipment, locomotive shops, rail car repair shops, a wheel shop, rail yards and office and shop equipment.

Weyerhaeuser is one of the leading US forest product companies with approximately 6.6 million acres of timberland in North America. We believe the company stands well positioned to manage its timber portfolios with its conversion into a REIT structure. In addition, other attributes like effective cost control initiatives, solid balance sheet, and robust guidance bode well for the company's future growth prospects.

However, the positives are offset by concerns over the industry's sensitiveness to macroeconomic conditions and its cyclical nature.  Three of the company's five business segments are highly dependent on the US housing market, which is still at the early stages of recovery after plunging badly following the recent economic crisis.  Weyerhaeuser also faces stiff competition from privately-held Canfor Corporation, International Paper Co. (IP) and Louisiana-Pacific Corp. (LPX). 

We currently expect the company's performances in line with the market and thus, maintain a Neutral recommendation on the stock.

 
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