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I came across Eagle Materials (EXP) yesterday, and wanted to write this one up this weekend before the market opens once again Monday morning. I do not own any shares of EXP or have any options. Eagle made the list of top % gainers Friday and closed at $52.21 on 5/19/06, up $2.49 or 5.01% on the day. Let's take a closer look at this company and see why I thought it attractive enough to include on this blog.
1. What does this company do?
According to the Yahoo "Profile" on Eagle Materials, the company
"...engages in the manufacture and sale of basic building materials used primarily in commercial and residential construction, and public construction projects in the United States. The company engages in the mining of gypsum and limestone; manufacture and sale of gypsum wallboard; and in the manufacture, production, distribution, and sale of portland cement."
2. How did the company do in the latest reported quarter?
On May 2, 2006, Eagle Materials reported 4th quarter 2006 results. For the quarter ended March 31, 2006, revenue came in at $221.6 million, up 45% over the $153.3 million in revenue for the same quarter last year. Net earnings were $43.8 million, up 59% from $27.5 million in net earnings for the same period in the prior year. On a diluted per share basis, earnings increased 76% to $.86/share, up from $.49/share in the same quarter last year.
3. How about longer-term results?
Reviewing the "5-Yr Restated" financials on EXP from Morningstar.com, we can see the steady growth in revenue from $367.2 million in 2001 to $616.5 million in 2005 and $791.4 million in the trailing twelve months (TTM).
Earnings dropped from $1.07/share in 2001 to $.72/share in 2002. However, since 2002, earnings have steadily increased to $1.91/share in 2005 and $2.67/share in the TTM.
The company also pays a dividend, with $.07/share reported in 2001, increasing to $.40/share in 2005. (It appears that the company paid a special dividend in 2004 when $2.15/share is reported on Morningstar.com).
The number of shares outstanding has been quite stable with 55 million in 2003, decreasing to 50 million in the TTM.
Free cash flow is solidly positive with $106 million in 2003, dropping to $100 million in 2004 and increasing to $135 million in 2005.
The balance sheet appears satisfactory with $60.2 million in cash and $147.3 million in other current assets resulting in total current assets of $207.5 million, which, when compared with the $114.8 million in current liabilities yields a current ratio of 1.81. Anything 1.5 or higher is generally considered a healthy ratio. The company has $315 million in long-term liabilities.
4. How about some valuation numbers?
Reviewing the Yahoo "Key Statistics" on Eagle Materials, we can see that this company is a mid-cap stock with a market capitalization of $2.63 billion. The trailing p/e is nice at 17.29, and the forward p/e is even better (fye 31-Mar-08) of 10.02. The PEG (5 yr expected) is quite reasonable at 0.30. Thus the company is anticipated to grow its earnings at three times the rate suggested by the p/e ratio.
Looking at the Fidelity.com eresearch website, we find that Eagle Materials is in the "cement" industrial group, and within this group EXP is at the top in terms of richness of valuation with a Price/Sales ratio of 3.5. EXP is followed by Florida Rock (FRK) with a Price/Sales ratio of 2.8, Cemex SA (CX) at 1.6, and Texas Industries (TXI) at 1.1.
Finishing up Yahoo, we see that there are 50.32 million shares outstanding with 47.97 milion that float. Currently, as of 4/10/06, there are 9.38 million shares out short, representing 18.80% of the float or 8.5 trading days of volume. This appears significant to me and may represent some of the buying pressure we observed Friday.
As already noted, the company pays a small dividend of $.70/share yielding 1.40%. The last stock split was a 3:1 split in February, 2006.
5. How does the chart look?
Looking at the "Point & Figure" chart on EXP from StockCharts.com we can see that the latest market correction is taking its toll.
The stock has traded strongly since at least March, 2001, when the stock was at $10.50, climbing to a peak of $74 in April, 2006, before pulling back to the $49 level this month. The stock appears to be well above its support level and does not appear to have broken down technically.
6. Summary: What do I think?
Let's review some of the information from this post: first, the earnings were superb with solid revenue growth and earnings growth reported recently. The last five years, at least since 2002, have been solid as well with regular earnings and revenue growth reported. The company pays a small dividend and has been increasing the dividend. The number of shares outstanding has been stable and in the past 12 months has decreased.
Free cash flow is positive and growing. And the balance sheet appears solid.
Valuation-wise the p/e and PEG are cheap, but the Price/Sales ratio is a bit steep. Finally, the chart, which has pulled back some this past month, still appears to be above support levels and given the proper market environment might once again resume its rise. In other words, if I did have permission to be buying a stock, this is the sort of company that would be on my "short list".
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