Cement and aggregate supplier Texas Industries
What analysts say:
- Buy, sell, or waffle? The five analysts covering Texas Industries are generally bullish, with four rating the stock a strong buy or buy and one saying hold.
- Revenues. For the second quarter, revenues are expected to grow 14% to $252 million.
- Earnings. Profits are expected to more than double to $0.55 per share, a 111% gain over the previous year.
What management says:
The primary driver for Texas Industries' growth will be significant margin expansion as it expands its cement capacity. With cement accounting for 75% of the company's revenues, management is seeking to expand capacity from 5 million tons per year to 7.5 million tons. Demand is strong for cement right now, particularly in Texas and California, the two largest markets accounting for over 23% of demand, where public works equals half of that demand and construction -- both residential and commercial -- comprises the rest. So even though the housing market is softening, particularly in California, there are plenty of opportunities for growth.
What management does:
The margin expansion that the cement mixer is relying on is what has been fueling Texas Industries' growth lately. There is a wide divergence of supply and demand in the U.S. right now, so the company is seeking to modernize its California facility to continue to be a low-cost producer of cement. While containing costs has allowed it to expand its operating margins so far, the company wants to transfer that to consistent net earnings as well.
|
Margin % |
08/05 |
11/05 |
02/06 |
05/06 |
08/06 |
|---|---|---|---|---|---|
|
Gross |
6.9 |
16.9 |
17.1 |
18.7 |
20.1 |
|
Op. |
0.1 |
7.2 |
7.7 |
9.4 |
10.8 |
|
Net |
(1.8) |
5.5 |
5.4 |
(0.1) |
9.1 |
|
Efficiency |
08/05 |
11/05 |
02/06 |
05/06 |
08/06 |
|---|---|---|---|---|---|
|
ROA |
0.0 |
1.9 |
1.9 |
3.4 |
6.3 |
|
ROE |
(3.2) |
5.7 |
5.4 |
(0.1) |
20.5 |
|
ROC |
0.0 |
2.3 |
2.4 |
4.2 |
7.6 |
One Fool says:
While there are a number of cement suppliers, there are strong barriers to entry into the industry. Texas Industries is the largest producer of cement in Texas, with 30% of the state's total capacity, and is the fourth-largest producer in California. It also holds leading positions in aggregates, sand, gravel, and ready-mix concrete in a number of markets.
It trades at some of its highest levels now, reflecting the strong run it has made. Working against it now is the fact that it's one of the smaller players in the market but carries a premium to the competition. Whether it's on a price-to-earnings comparison, price-to-sales, or enterprise value-to-EBIT, Texas Industries is priced so that it must achieve its goals. As the California plant won't come online till late in 2007, I'd look for a better buying opportunity.
Competitors:
-
Cemex
(NYSE:CX) -
Florida Rock
(NYSE:FRK) -
Martin Marietta Materials
(NYSE:MLM) -
US Concrete
(NASDAQ:RMIX) -
Vulcan Materials
(NYSE:VCM)
Related Foolishness:
- A Concrete Rose in Texas
- Cracks in the Pavement for Texas Industries?
- Know Your Numbers: Construction Spending
Cemex is a recommendation of Motley Fool Stock Advisor. A 30-day guest pass lets you see why the cement industry leader was a favorite of Tom Gardner.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
