Plum Creek TimberTicker: PCL
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5

As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.

Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.

You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.

Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:

Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000

Total:7,756,000

How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.

More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.

Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million

EV/Acre= $1,121

Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion

Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million

The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.

Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.