Reversing course from their 46% decline through 2018, shares of Eagle Materials (EXP 0.09%), a manufacturer of basic building materials, have soared 52% through the first six months of 2019, according to data from S&P Global Market Intelligence. In addition to guiding for a strong 2019, the execution of a share buyback program, the interest of an activist investor, and a tide of bullish sentiment provided lift for the stock.
A flurry of factors contributed to the stock shooting up 16% in January. Besides the news that the Trump administration was reconsidering a new infrastructure plan, the company's report of its Q3 2019 earnings, which included an optimistic outlook for 2019, and news that the company had purchased more than two million shares (about 5% of its outstanding shares) motivated investors to pick up the stock.
Two months later, in March, shares flew higher upon news of an activist investor's interest in the company. Disclosing an 8.9% stake in the company, Sachem Head stated in a regulatory filing that it believes Eagle Materials is "undervalued and is an attractive investment," adding that it intended to engage in dialogue with the company regarding its "management, operations (including cost structure), assets, capitalization, financial condition, strategic plans, governance, board composition and the future."
News of Sachem Head's position in Eagle Materials had a notable effect on Wall Street. An analyst at Jefferies, Philip Ng, stated that shares could climb to $99 amid the activism and confirmed his buy rating on the stock, according to TheFly.com. Shortly thereafter, Berenberg initiated coverage on the stock with a buy rating and a $103 price target, and an analyst at Raymond James upgraded the stock to outperform from market perform, assigning a $95 target. At the time, shares of Eagle Materials were changing hands at about $85 per share. Enthusiasm for the stock extended into May, when an analyst with Citi raised his price target to $105 from $101, reiterating a buy rating.
While many factors contributed to the rise in Eagle's stock in the first half of 2019, none was as pronounced as the actions of Sachem Head, which motivated analysts to upgrade the stock and the company itself. In addition to nominating two people to Eagle's board of directors, Sachem Head called for the company to separate its cement and wallboard businesses, according to Reuters. Subsequently, Eagle Materials announced that it intends to spin off its heavy-materials and light-materials businesses into two publicly traded companies.
With so much upheaval currently underway at Eagle Materials, it doesn't seem like now would be a prudent time for conservative investors to consider a position in the company. Instead, it should only be something on the radar of those who are willing to take on a fair amount of risk.