Weyerhaeuser Co (NYSE:WY), a real estate investment trust, is converting millions of preferred shares into common stock. The company said the conversion will be effective starting today, July 1. About 23 million common shares are being issued to replace 13.8 million preferred shares, causing a dilutive impact on the stock.
Conversion rate
Weyerhaeuser said that the preference shares being converted are of Series A. Each of those preference shares is converting into 1.6929 common shares of Weyerhaeuser. The company revealed that the conversion rate was determined by working out the volume-based average price of the common shares between June 1 and June 28.
As such, the company is issuing about 23 million common shares to convert 13.8 million Series A shares.
Weyerhaeuser said it will not issue fractional common shares in the conversion transaction. Instead, it appears the company is ready to provide cash compensation for fractional common shares. The company is willing to provide cash compensation at the rate of $28.1226 for each common share.
Impact on EPS
Because the newly-issued common shares will be added to the basic share count, they will have a dilutive impact on the earnings in coming quarters. Weyerhaeuser had about 759 million common shares at the end of 1Q2016 and it posted EPS of $0.24 in the quarter.
As per Zacks, the consensus EPS estimate for Weyerhaeuser in Q2 is $0.20.
Stock update
Weyerhaeuser is diluting its stock at a time when some analysts on Wall Street are modeling a favorable future for the company. Analysts at D.A. Davidson upgraded their rating on the stock to BUY from NEUTRAL while citing positive U.S. housing stats. The analysts are of the view that Weyerhaeuser will be less affected by the recent Brexit vote that has shaken many global stocks. The reason Weyerhaeuser appears immune to Brexit is that its business model is sharply U.S.-focused. D.A. Davidson has a 12-month price target of $33 on the REIT stock.