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Plum Creek: REIT Broker Action

Plum Creek Timber

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Plum Creek Timber (PCL)

Company Profile : Plum Creek Timber is a Seattle-based real estate investment trust which owns and manages timberlands in the United States. Its products include lumber products, plywood, medium density fiberboard, and related by-products, such as wood chips.

Plum Creek was upgraded to neutral, from underperform, by analysts at Zacks Investment Research who had a $42 price target on the stock.

Analyst Meena Goyal noted that "we are changing our long-term recommendation for Plum Creek from Underperform to Neutral as we anticipate it to perform in line with the broader market."

Goyal said that Plum Creek's diversified timber and land base allow it to benefit from large economies of scale. Plum Creek is the largest publicly traded timber REIT, he pointed out.

"In addition, the upsurge in demographic trends driving housing markets and demand for real estate properties across the country provides a strong economic backdrop for the company to demonstrate solid financial performance in the future," the analyst added.

"However, the cyclical nature of the business, cutthroat competition, and strict environment policies undermines its growth potential. "

Timber REITs outperformed both the overall equity REIT market and the S&P 500 in 2010 though Plum Creek returned just 2.3%.

Analysts at Keefe, Bruyette & Woods noted that timber REITs limited harvest volumes as much as 30% below sustainable outputs in 2010 as a means of maximizing trees rather than selling into a depressed market. As such, the research firm expects 25% growth in timber EBITDA for 2010, and 10% to 15% growth in 2011.

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