Eagle Materials recently presented at Southwestern Showcase 2006, an annual event held in Dallas during November. Check here for a list of presenting firms; most also provided a recording of their presentations. I'll be providing a recap of the events I attended; be sure to check The Motley Fool's daily headlines for updates.
Eagle Materials (NYSE:EXP), spun off from homebuilder Centex (NYSE:CTX) in January 2004, is one of approximately eight domestic manufacturers of gypsum wallboard. At the showcase, Eagle detailed that the top three producers include publicly traded USG (NYSE:USG), National Gypsum, and Koch Industries, which collectively control 65% of the market. Eagle competes among the next tier of players, and the wallboard division comprises nearly 60% of total company sales. Eagle also has a sizeable cement-producing operation that accounts for 25% of total sales. It competes with behemoth Cemex (NYSE:CX) and many regional players in the cement space.
Over the past several years, Eagle has posted impressive growth as strong markets for new home and other construction have generated robust demand for its wallboard, cement, and related products. It also generates high levels of operating cash flow, and although its operations are capital-intensive, it is left with capital to repurchase shares and pay a decent annual dividend yielding 1.7%.
Eagle is in the process of building a new wallboard manufacturing facility and modernizing three cement plants. As a result, capital expenditure needs will jump over the next couple of years -- not the best timing, as the industry struggles with plummeting new construction trends. Management detailed that the two- to four-year outlook is more stable and is ramping up capacity to build on its exposure to the growing Southwestern region of the U.S. In any case, it still projects diluted earnings to grow to $3.80-$4.20 for its fiscal year to end March 31, 2007, up from $3.02 in 2006.
I don't know if now is the best time to consider investing in Eagle Materials, as housing start trends are projected to be challenging through at least next year. Fortunately, the company generates solid cash flow and is primarily exposed to regions that should benefit as the population ages and retires to warmer Sun Belt areas.
Barring any unforeseen expansion snafus or rapid industry deterioration, Eagle should be able to continue its status as one of the lowest-cost producers, which is extremely important in commodity businesses. If your investment time frame runs past the next 12 to 18 months, this is a stock to keep your eye on; somebody should, as only a couple of analysts currently cover Eagle.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
