Weyerhaeuser stock pops as D.A. Davidson calls it 'best in class'

Weyerhaeuser wood products
Source: Weyerhaeuser
Weyerhaeuser wood products

Weyerhaeuser shares popped nearly 5 percent Wednesday after D.A. Davidson upgraded shares of the timberland company to "buy" from "neutral."

D.A. Davidson called Weyerhaeuser the "best in class" and "most liquid" of timber real-estate investment trusts. The firm recommended investors buy the stock to capitalize on its 4.5 percent yield and capital appreciation opportunity.

In May, the forest-products company agreed to sell pulp mills and other facilities for more than $1.6 billion, adjusted for taxes. This revenue could be funneled toward operations or maybe even a dividend increase at the end of the 2017 fiscal year, D.A. Davidson said.

"We remain confident that US housing starts can reach 1.5 million and that WY can capitalize on this growth, while, in the case of a US economic slowdown, WY's liquidity, ability to allow fiber to 'accumulate on the stump' and attractive dividend would allow shares to outperform peers," D.A. Davidson's Steven Chercover said in a Wednesday note to clients.

The investment bank has a $33 price target on Weyerhaeuser, saying it has a 25 percent upside because its markets, domestic housing and U.S. timberland assets are shielded from the effects of Brexit.

"While Britain's decision to exit the European Union has added increased volatility and uncertainty to global equity markets, we believe that WY's primarily domestic focused business will allow fundamentals to stay well-insulated from the outside noise," added the firm.

Weyerhaeuser closed at $29.23 on Wednesday. It has dropped 2.5 percent so far this year.

WY year to date:

Disclosure: D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months.