Plum Creek's large property holdings and forest management practices allow it to take advantage of economies of scale and the increasing value of timber over time to offset many of the negative effects of cyclical commodity pricing.
The company's higher-use and non-strategic use land holdings have been generating high revenues and profit margins thanks to a currently booming residential real estate market. Especially with higher-use land, Plum Creek is able to harvest the land to its fullest timber potential before selling or leasing it to create more revenue.
Lumber futures are greatly correlated with PCL stock performance.
With lumber futures at a 10 year low, as prices had been lower as traders followed the stock market and other economic-indicator markets. This negative sentiment, however, is not as tied to the actual supply of wood flowing in than the demand (as shown by economic-indicators). A rise in the lumber futures therefore either means an economy recovery or a shortage in lumber. In the long-term, it seems that the former is inevitable, which will signal that lumber futures will exit from its bearish stance.
As Cap-and-Trade legislation continues to stem air pollution, sale of wood pellets used to generate electricity will increase. This is because wood pellets are a cheaper alternative to wind and solar energy, yet produce less pollution than traditional coal burning. In such a situation, PCL will be able to take advantage of this and drive higher profits.
The growth of cellulosic ethanol as an alternative fuel has the potential to create new growth opportunities for Plum Creek, as a new market for what was formerly considered to be waste would allow the company to monetize everything produced.
