Rayonier Is Well Positioned to Capitalize on North American Timber Demand; Shares Fairly Valued

We are initiating coverage on Rayonier with a fair value estimate of $37 per share and a no-moat rating. Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing roughly 2.7 million acres of timberland. We do not think Rayonier benefits from an economic moat as the firm does not possess structural competitive advantages. Timberlands can be immensely profitable when demand is strong, but margins deteriorate during times of weak demand. Fundamentally, timber is a commodity. Once harvested, timber is used to produce a number of derivative commodities. Building a moat in a commodity business typically necessitates a low-cost production position or a transportation cost advantage--things Rayonier, along with its North American peers, fundamentally lack.