Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
So what: As the largest distributor of wallboard and manufacturer of gypsum products in the United States, any positive news from related companies such as Owens Corning bodes well for USG. Owens Corning makes and sells fiberglass insulation and roofing-related products which tend to have similar demand curves
Owens Corning's adjusted earnings per share quadrupled from $0.11 to $0.44 in the fourth quarter on a sales increase of 10.3%, in part due to improved pricing. CEO Mike Thaman credited the success with "benefiting from a stable and growing global economy and a recovering U.S. housing market." He expects more growth in 2014.
Now what: Similar to Owens Corning's 10.3% sales gains with 300% earnings gains, USG's earnings tend to rise much faster than its sales. As volumes of demand for wallboard improves by relatively small amounts, the market prices that USG realizes tend to skyrocket. All other things being equal, for every $1.00 increase in the price of wallboard is $1.00 that tends to the bottom line (pre-tax).
If Owns Corning's outlook proves to be correct, look for wallboard prices to continue to escalate and USG's earnings to potentially explode. Last year was the first time USG reported full-year net income since 2007, right before the housing collapse. Don't be surprised to see analysts raise their per-share guidance for full-year-2014 earnings.
Analysts currently expect a 158% rise in earnings per share for this year, which are currently at $1.73 compared to $0.67 last year. USG has a forward P/E under 20, even less if analysts raise estimates -- this looks cheap when considering realized and further expected earnings growth. However, Fools need to be cautious for the long term; the pendulum swings both ways. Whenever residential and commercial construction activity starts to get even mildly weak, wallboard prices usually crash as fast, or faster, than they went up.