USG Corporation (NYSE:USG) plans to continue to deliver strong results by implementing its plan to win which includes:
- Lower costs – selling general and administrative expenses declined by 4% in the quarter ended March 31, 2013 while sales rose by 4% compared to the same quarter in 2012.
- Diversify earnings – the company’s Oman quarry is breaking ground and will serve the Middle East and India. It is trying to grow its commercial and insulation product offerings at its L&W supply division.
- Growing through innovation – the new UltraLight portfolio of wallboard is gaining traction with its ad campaign “The Weight Has Been Lifted”.
USG Corporation (NYSE:USG) commands over a 25% share of the wallboard market in the U.S. and it should benefit from recovery in construction, repair, and remodeling. Also, the company has recently centralized its pricing authority, which should improve margins going forward.
On the negative side, USG Corporation (NYSE:USG) has $400 million of 10% convertible securities that could potentially dilute current shareholders by 35 million new shares. This is somewhat offset by the company’s net operating loss carry-forward of $2.1 billion, which could have a positive net cash effect from reduced federal and state taxes of $1 billion in future years.
| EXP | JHX* | USG | |
| Current fiscal year sales (est.) | $900 | $1,520 | $3,500 |
| Current fiscal year operating margin (est.) | 23% | 13% | 9% |
| Last fiscal year sales | $643 | $1,321 | $3,224 |
| Last fiscal year operating margin | 21% | 11% | 6% |
| Year ago sales | $495 | $1,237 | $2,910 |
| Year ago operating margin | 14% | 14% | negative |
| 2-years ago sales | $462 | $1,167 | $2,834 |
| 2-years ago operating margin | 13% | 16% | negative |
| 3-years ago sales | $468 | $1,125 | $3,130 |
| 3-years ago operating margin | 17% | 18% | negative |
Sales and operating margin for the last four fiscal years. Sales are in U.S. $ millions.
Some more numbers
Currently, Eagle Materials, Inc. (NYSE:EXP), James Hardie Industries plc (ADR) (NYSE:JHX), and USG trade at price-to-sales ratios based on their estimated current fiscal year sales of 4.0, 2.6, and 0.8, respectively. About three years ago, near the peak of the financial and housing crises, the common stocks of Eagle Materials, James Hardie Industries plc (ADR) (NYSE:JHX), and USG traded at price to sales of about 1.3, 2.8, and 0.6, respectively.
It seems like Eagle Materials is the only stock whose valuation has made significant progress based on the price-to-sales ratio. Given that the housing market is in a recovery mode and the company specific factors discussed above, higher valuation is also warranted for James Hardie Industries plc (ADR) (NYSE:JHX) and USG, despite their lower operating margins.
Conclusion
Eagle Materials, James Hardie Industries plc (ADR) (NYSE:JHX), and USG are uniquely positioned to benefit from a recovery of the construction and remodeling industries in the U.S. In addition, Eagle Materials has a strong exposure to the growing energy related construction area, James Hardie is a leader in fiber cement and is currently diversifying into coatings, and USG has strong pricing power and is benefiting from demand for its high-end ceiling materials. Continuing increase in demand bode well for investors in these three companies.
Delian Naydenov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Delian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Ride The Housing Recovery with These 3 Picks originally appeared on Fool.com is written by Delian Naydenov.
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