Buckeye Technologies (NYSE: BKI), based in Memphis (and founded in 1992) engages in the manufacture and distribution of cellulose-based specialty products. It operates in two segments, specialty fibers and nonwoven materials through sales agents in North America, Europe, Asia and South America. The company’s products are used in various applications, such as disposable diapers, personal hygiene products, engine air and oil filters, food casings, rayon filament, acetate plastics, thickeners, and papers.
This past October Buckeye Technologies reported its fiscal first quarter 2013 earnings, revealing that weaker demand for wood and cotton fibers, along with the negative effects of a facility, contributed to a 15 percent decline in Q1 2013 sales. Sales for Buckeye were $197 million, compared to $232 million in sales for the fiscal first quarter of 2012. Net income declined to $24.6 million, or 62 cents per share, compared to $29.9 million, or 74 cents per share, for the period a year-ago.
Since reporting earnings the stock has taken a nosedive from the $32 per share to a 52-week low of $23.52 per share. The stock has since recovered a bit and is now trading around $28 per share. Buckeye was way oversold a couple of weeks ago and is still considered to be undervalued at these levels, with its RSI still below 30. BKI’s recent annualized dividend of 0.32 a share, which is currently paid in quarterly installments, works out to be slightly above an annual yield of 1.00%, offering investors some compensation while waiting for the stock to appreciate in value.
A little over a month ago, RBC Capital stated that Buckeye Technologies Inc.’s stock declined sharply as investors feared weaker specialty wood prices. However, they still expect these prices to rise next year as the firm maintains a $36 price target and an outperform rating on the stock. The company’s core business remains intact as demand for wood will remain elevated especially with the housing recovery picking up steam into 2013. The company’s products are in high demand in the industry and its sales are expected to pick up as housing continues to recuperate.
Buckeye has a market capitalization of just under $1 billion and operates basically in an oligopoly. The company’s main competitors include Rayonier (NYSE: RYN), Tembec, and Archer Daniels Midland (NYSE: ADM). Buckeye’s stock price has been the victim of a poorly viewed industry and a negative earnings report. Quite frequently stocks overreact to one piece of data or a single quarter earnings report. With Buckeye’s stock dropping around 30% due to one release is considered oversold, and still offers a great point of entry even though it has bounced from its lows. Much of the issue why investors sold the last earnings report relates to property plant and equipment, which ultimately can be fixed. Their core products and services remain in high demand, making Buckeye a solid buy at these levels.