PotlatchDeltic Corporation (NASDAQ:PCH) is all set to divest El Dorado Medium Density Fiberboard (“MDF”) business to U.S.-based wood products company, Roseburg Forest Products (“Roseburg”).
The deal has a purchase price of approximately $92 million, of which $63 million will be funded in cash and $29 million in revenue bond obligations. The transaction is likely to close in the first quarter of 2019. The MDF business will continue to operate independently till the closing of the transaction.
On Feb 20, 2018, the company’s wholly-owned subsidiary, Portland Merger, LLC merged its entities with Deltic Timber Corporation (“Deltic”) and took possession of this well-positioned MDF business.
Rationale Behind the Divestiture
The company is divesting MDF business in order to boost performance of the Wood Products segment and enhance shareholder value. As it is, in Wood Products segment, the company anticipates average lumber price realization15-20% lower than the third-quarter level along with reduced lumber shipments.
Moreover, the company anticipates overall adjusted EBITDA to be marginally less than half of the third-quarter figure, mainly due to lower harvest volumes and sawlog prices. Consequently, its shares have declined 38.4%, underperforming the industry’s fall of 34.1% in the past year.
We believe that the recent move will help the company navigate its margin pressure, given solid revenues in the wood segment.
In the past three quarters, the company reported higher revenues and earnings in its Wood Products segment. Revenues in the said segment recorded a notable 63% year-over-year increase to $532.4 million in the first nine months of 2018.
Zacks Rank & Stocks to Consider
PotlatchDeltic currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the Construction sector are Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) , Altair Engineering Inc. (NASDAQ:ALTR) and EMCOR Group, Inc. (NYSE:EME) . While Great Lakes currently sports a Zacks Rank #1 (Strong Buy), Altair Engineering and EMCOR both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Great Lakes, Altair Engineering and EMCOR’s earnings in 2018 are expected to increase 111%, 23.1% and 20%, respectively.
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