(RTTNews) - Monday, Credit Suisse upgraded Weyerhaeuser Co. (WY: News ) shares to Neutral from Underperform and increased its price target to $37 from $34. The brokerage widened its 2009 loss per share estimate to $0.50 from $0.10. The brokerage lowered its 2010 EPS estimate to $1.40 from $1.60.

Analyst Dillon believes WY is positioned to convert to REIT status by year-end 2010 and that, provided the company can achieve close to a positive free cash flow status, the company will effect this "election" by making the requisite accumulated earnings and profits distribution in the fourth quarter of 2010. As of the end of the third quarter, WY had about $1.7 billion in cash and another $1.5 billion in untapped credit lines.

Like other timber companies which converted to REIT status in the mid-2000's, the analyst believes WY would then want to start paying a consistent, and high, dividend as a REIT starting in the first quarter of 2011. The analyst noted that current individual income tax laws could make a 2011 conversion punitively expensive for WY as the required cash distribution could be $2.5 billion, versus about $1.1 billion in 2010.

The analyst noted that WY posted an operating loss of $0.26 in the third quarter, beating his and consensus loss estimate of $0.45. This was WY's narrowest loss in a year. The upside surprise occurred mainly in the Cellular Fibers. fluff and dissolving pulps, segment, which beat the analyst's estimate by $0.09. All of the other segments came to within a penny of our expectations.
The analyst's neutral rating and new price target better reflects his belief that WY has at least a 75% chance of making the required cash distribution in late 2010 to effect a conversion to REIT status. The analyst lowered 2009 and 2010 estimates to reflect a more gradual recovery in the wood products and timber businesses.

Currently, WY is up $0.53 or 1.46% and trading at $36.87.

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by RTT Staff Writer

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