The Housing Recovery Could Rebuild USG's Earnings

On Wednesday, USG (NYSE: USG  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

USG has struggled during the housing bust, plunging from over $100 per share during the best days of the boom to just $4 at the worst moments of 2009. Recently, though, housing appears to have finally started to rebound more strongly. Let's take an early look at what's been happening with USG over the past quarter and what we're likely to see in its quarterly report.

Stats on USG

Analyst EPS Estimate

$0.10

Year-Ago EPS

($0.24)

Revenue Estimate

$864.2 million

Change From Year-Ago Revenue

6.4%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will USG build itself back up this quarter?
In recent months, analysts have been more excited about USG's earnings prospects. They've boosted their estimates on the just-finished quarter by a penny per share, but they've raised their full-year 2013 EPS consensus by a much more substantial $0.14. Yet the stock hasn't responded favorably, falling about 12% since mid-January.

Many companies that make products for the housing industry have seen substantial gains recently as residential building activity has increased. Paint-maker Sherwin-Williams (NYSE: SHW  ) has soared on increased demand at its retail paint stores as well as from commercial use. Home Depot (NYSE: HD  ) , which sells some of the products that USG produces, has soared to all-time highs on improving prospects for building and remodeling activity. So far, USG appears poised to capture its share of higher sales of its drywall and other building materials.

But for USG shareholders, one big move from the company left them somewhat less excited about the stock. Last month, the USG board reduced the threshold for its poison-pill takeover-defense plan so that it would trigger if any investor gains control of more than 4.9% of the company's shares. The board argues that it wants to defend itself from opportunistic buyers seeking to use the company's accumulated net operating losses, but the poison pill may also deter legitimate buyers seeking to acquire USG.

In USG's earnings report, watch closely for signs of how well the company is taking advantage of increased demand. With the industry broadly improving, any signs of weakness at USG would be most unwelcome and would point to potential competitive disadvantages that could hold the stock back in the long run.

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