D.A. Davidson & Co. has raised its estimate of Potlatch Corp.'s 2010 earnings to $1.59 a share, from $1.40 a share, and has increased its estimate of the Spokane-based company's 2011 earnings to $1.75 a share, up from $1.71.

The Great Falls, Mont., regional brokerage company also has retained its "buy" recommendation on Potlatch's stock and has maintained its target price of $42 a share. Potlatch's stock sold for about $37 a share in the middle of last week.

Potlatch, which has a substantial timberland base and a heightened interest in profiting from its real estate holdings, announced July 30 that it had entered into an agreement to sell about 41,000 acres of Wisconsin and Arkansas timberland to RMK Timberland Group, of Atlanta, for roughly $29 million. It expected the sale to close in August and said it also had signed an agreement with RMK to sell another 46,500 acres in the fourth quarter for about $35 million.

Potlatch also reported July 30 second-quarter net income of $11.7 million, or 29 cents a diluted share, up from $3.8 million, or 9 cents a share, in the year-earlier quarter.

In an analyst's report, D.A. Davidson said it had increased its 2010 estimate of Potlatch's earnings primarily because of "the certainty on the land sales front." It added it had speculated earlier that Potlatch "was working on medium-sized deals, and it probably still is."

D.A. Davidson said, however, that its estimates reflected a more conservative stance on the Spokane company's likely future sales of lumber, the "pricing of which did a round trip in the first half," first going up and then back down, and a tweaking of its assumptions regarding the company's log harvest volume.

"We are expecting a slow but steady recovery in the domestic economy—clearly a double dip (recession) would jeopardize our estimates," it said. It added, however, that, "Potlatch has done a good job managing through the 'Great Recession,' which we believe is over, although there are doubters out there. With the two deals pending, positive cash flow from wood products, and generally improving log markets, the company should end the year with an enhanced cash position."

Potlatch said that log and lumber prices had softened after hitting high levels in the second quarter. It says it continues to project solid results in its resource business from log sales and expects its wood products segment will generate positive cash flow for the rest of the year. It says it believes its real estate segment, thanks to the timberland sales it had announced, will be the strongest contributor to its second-half results.