The Real Opportunity with Potlatch Corporation (NASDAQ:PCH) is the NAV

August 18, 2016

Portfolio Manager Eric Hewitt of OppenheimerFunds says that when looking at Potlatch Corporation (NASDAQ:PCH), a REIT that operates through the resource, wood product and real estate segments, the opportunity lies around the company’s net asset value.

Our philosophy is built around changes in return on invested capital. We are excited about the capital structure changes at Potlatch. Housing in the U.S. is very strong. Housing starts are picking up and have been on a steady trend higher over the past several years. The same goes for multifamily building. And so we like the fundamentals of the timber business.

That said, the real opportunity within Potlatch is looking at the net asset value, the NAV, of the company. It’s pretty easy to figure the NAV out by looking at the timber assets that they own and assigning value to those assets based on a per-acre trading value that you can see in the marketplace.

The net asset value of Potlatch right now, as we calculate it, is between $45 and $50. The stock is trading at $34 today. The management has been selling the timber assets — raw land — and using that cash to buy back their stock and thereby closing the gap between the current $34 stock price and the $45 to $50 NAV, and we think that will continue. They just sold some land in Idaho recently and have been using the proceeds of that sale to buy back stock, and we think that’s a story that can play out at least until the stock trades closer to NAV.

Eric Hewitt