Does the recent performance of Weyerhaeuser Company (NYSE: WY) stock reflect its financial health?


Weyerhaeuser (NYSE: WY) stock is up 4.9% in the past three months. Since the market typically pays for the long-term financial health of a business, we decided to study the fundamentals of the business to see if they could influence the market. In this article, we have decided to focus on Weyerhaeuser’s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

How to calculate return on equity?

The return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, Weyerhaeuser’s ROE is:

22% = US $ 2.3 billion ÷ US $ 10 billion (based on the last twelve months to June 2021).

The “return” is the amount earned after tax over the past twelve months. One way to conceptualize this is that for every $ 1 of shareholder capital it has, the company has made $ 0.22 in profit.

What is the relationship between ROE and profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of Weyerhaeuser’s 22% profit growth and ROE

At first glance, Weyerhaeuser appears to have a decent ROE. Especially compared to the industry average of 5.6%, the company’s ROE looks pretty impressive. It is probably because of this that Weyerhaeuser has been able to record a decent growth of 19% over the past five years.

As a next step, we compared Weyerhaeuser’s net income growth with the industry, and luckily, we found that the growth observed by the company is above the industry average growth of 8.9%.

NYSE: WY Past Profit Growth September 16, 2021

Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This then helps them determine whether the stock is set for a bright or dark future. Has the market taken into account WY’s future prospects? You can find out in our latest intrinsic value infographic research report.

Is Weyerhaeuser Using Retained Earnings Efficiently?

Weyerhaeuser appears to pay out most of its income as dividends judging by its three-year median payout rate of 84%, which means the company only keeps 16% of its income. However, this is typical for REITs as they are often required by law to distribute most of their income. Despite this, the company’s profits increased moderately as we saw above.

Additionally, Weyerhaeuser has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. After studying the latest consensus data from analysts, we found that the company is expected to continue to pay out around 86% of its profits over the next three years. However, Weyerhaeuser’s future ROE is expected to drop to 12% although there is not much expected change in the company’s payout ratio.


Overall, we think Weyerhaeuser’s performance has been quite good. Especially the high ROE, which contributed to the impressive growth in earnings. Although the company only reinvested a small portion of its profits, it still managed to increase its profits, which is appreciable. That said, looking at current analysts’ estimates, we were concerned that while the company has increased profits in the past, analysts expect its profits to decline in the future. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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