L1 Capital Considers Eagle Materials (EXP) as Undervalued

L1 Capital International, an investment management company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund returned -10.1% net of fees in the second quarter compared to the benchmark return of -8.5%. Current macroeconomic issues and geopolitical situations affected the fund’s performance in the quarter. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

L1 Capital International discussed stocks like Eagle Materials Inc. (NYSE:EXP) in the second quarter investor letter. Headquartered in Dallas, Texas, Eagle Materials Inc. (NYSE:EXP) is a construction material producer and distributor. On September 6, 2022, Eagle Materials Inc. (NYSE:EXP) stock closed at $115.28 per share. Eagle Materials Inc. (NYSE:EXP) had a return of -11.87% for the past month and its shares lost 21.04% of their value in the last 52 weeks. Eagle Materials Inc. (NYSE:EXP) has a market capitalization of $4.344 billion.

Here is what L1 Capital International specifically said about Eagle Materials Inc. (NYSE:EXP) in its Q2 2022 investor letter:

“The investment thesis for Eagle Materials Inc. (NYSE:EXP) was featured in our December 2020 Quarterly Report. Since then, the business has met our expectations. Eagle Materials is a low-cost regional producer of cement and wallboard. The U.S. cement industry is sold out, with imports required to meet demand levels. Eagle Materials operates in the centre of the U.S. where imports from the coast are prohibitively expensive. These sold-out conditions are before an expected increase in demand in 2023 and beyond as the U.S. implements its US$1 trillion infrastructure spending program.

Eagle Materials’ wallboard operations also have a cost advantage over its competitors, predominantly using natural gypsum located next to its manufacturing facilities, rather than relying on more expensive synthetic gypsum derived from the waste generate by coal power plants or imported natural gypsum.

Both the cement and gypsum industry have increased prices to offset cost inflation (see Figure 11). Eagle Materials has benefitted from these price increases and expanded margins due to its low-cost position in the industry. While we expect some softening in the wallboard industry due to reduced new residential construction, we consider Eagle Materials is currently materially undervalued, trading on 11x EV/EBIT, 12x PE and a 10% free cashflow yield.”

Eagle Materials Inc. (NYSE:EXP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held Eagle Materials Inc. (NYSE:EXP) at the end of the second quarter which was 28 in the previous quarter.

We discussed Eagle Materials Inc. (NYSE:EXP) in another article and shared the list of stocks that can begin to rebound in 2023. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.

Disclosure: None. This article is originally published at Insider Monkey.