Eagle Materials (EXP) May 20, 2006
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

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".

Thanks again for visiting! Please feel free to drop me a line at bobsadviceforstocks@lycos.com if you have any comments or questions. Always feel free to leave your comments right on the blog as well. Finally, please be sure to come and visit my Stock Picks Bob's Advice Podcast Site where I discuss many of the same stocks I write about on the blog.

Bob

"Trading Transparency" Hibbett (HIBB)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

A few moments ago I sold my remaining 84 shares of Hibbett (HIBB) at $24.56. Yesterday, after the close of trading, HIBB reported 1st quarter 2007 results. While earnings were up 12.9% over last year, and net sales were up 10.5%, the number that gave me pause was the same store sales report, which, for the quarter was down 0.07%. Since the market is overall quite weak, I went ahead and pulled the plug on this holding with fundamental weakness in sales.

These shares were initially acquired 3/6/03 with a cost basis of $6.50/share. Thus, even though the stock is down sharply today, I sold with a gain of $18.06/share or 277.8% since my purchase of this stock.

It is a bit sad to part with such a great company like Hibbett in the portfolio, but the same store sales reports gave me a great deal of concern.

Thanks so much for stopping by! If you have any comments or questions, please feel free to drop me a line at bobsadviceforstocks@lycos.com or just leave them on the blog. Be sure to visit my Stock Picks Bob's Advice Podcast Site where I talk about many of the same companies I write up on the blog.

Bob

Maintaining Trading Discipline in a Declining Market
One of my greatest challenges as an investor is knowing how to deal with market declines and investment losses. One would like to have something automatic like this Rube Goldberg machine.

In other words, to have a trading system that will diminish your losses in a bear market and maximize your gains in a bull market.

Too often we find our emotions working against our own best interests. When investments decline we rationalize the losses and defer the realization implicit in a sale of holdings at a price below their cost. This exposes our investments to greater losses and delays the eventual 'day of reckoning'.

In the same fashion, as stocks move higher, our greed overcomes our rational thoughts and we delay realizing some of the gains by selling a portion of the holding, and instead allow our dreams of larger and greater profits override our need to 'lock-in' some gains with a sale.

Within every successful trading system there should be a method of avoiding the problem of compounding one's losses while at the same time encouraging the compounding of gains. In other words, when investments within a portfolio develop losses, they should be sold at a predetermined price point and the proceeds from such sales should not be re-invested; instead, the proceeds should be kept in cash to be re-invested when an appropriate buy signal occurs.

In the same fashion, when stocks are sold on 'good news' events, such as price appreciation, this should also be considered a bullish indicator and the proceeds from such good news sales should be re-invested in a new stock position.

I have expressed this strategy as being hardest on declining stocks that are sold completely and quickly on developing losses, and easiest on gaining stocks which are on the other hand sold slowly and partially as they appreciate in price. This bias will also select for the strongest stocks within your portfolio.

A strategy with pre-determined sale points both on the upside and downside reduces trading stress as one simply needs to review the stock price to determine one's action. It is the requirement for arbitrary decisions that may lead to over-trading as well as under-trading of one's holdings.

No system can respond quickly enough to avoid all losses and lock in all gains. However, having a system that can move one's holdings back and forth from equities to cash and back again, should be helpful in the long-run in building one's assets by maximizing gains and minimizing losses.

Wishing my readers the very best of luck in dealing with the difficult investing environment we are all facing!

Bob

FactSet Research Systems (FDS) Revisiting a Stock Pick
Click HERE FOR MY PODCAST ON FACTSET RESEARCH (FDS)

Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

I was looking through the list of top % gainers on the NYSE today and saw that an 'old favorite' of mine from this blog, FactSet Research Systems, Inc. (FDS) was on the list. In fact, FDS closed at $46.23, up $3.64 or 8.55% on the day. I do not have any shares or options on this stock.

I first posted FDS on Stock Picks Bob's Advice on June 17, 2003, when it was one of the first selections on this blog, trading at $40.39/share. Adjusted for a 3:2 stock split on February 7, 2005, this pick was actually selected at a price of $26.93/share. Thus, with the stock closing at $46.23, this represents an appreciation of $19.30 or 71.7% since I first 'picked' the stock here on the blog.

Almost exactly a year ago, on May 18, 2005, I again posted FactSet (FDS) on Stock Picks Bob's Advice, when it was trading at $31.53. With today's close at $46.23, the stock has appreciated $14.70 or 46.6% since posting in the past year.

And today, with the stock once again on the move, I have posted FDS on Stock Picks for the third time! Let's take a closer look at this company and let me show you why I believe it deserves another review!

1. What exactly does this company do?

According to the Yahoo "Profile" on FactSet Research, the company

"...supplies economic and financial data and analytics to the investment community worldwide. The company’s applications provide users access to company analysis, multicompany comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alpha and backtesting, portfolio optimization, and real-time news and quotes."

2. What about the latest quarterly results?

On March 21, 2006, FactSet reported 2nd quarter 2006 results. Revenue for the quarter came in at $93.7 million, up 23% from the prior year's $76.5 million and also beating consensus of $92.3 million expected. Net income grew to $19.2 million or $.38/share, up from $17.2 million or $.34/share the prior year. This also beat expectations of $.37/share as reported. In addition, the company raised guidance on the upcoming quarter for revenue, with $95-$97 million now expected, up from analysts' expectations of $94.9 million.

Thus from my perspective this quarterly report did everything right: reporting increased revenue, increased earnings, exceeding expectations and raising guidance. Something I call the "trifecta plus"!

3. How about longer-term results?

Reviewing the "5-Yr Restated" financials on FDS from Morningstar.com, we find first of all that revenue growth has been uninterrupted with $167.6 million in 2001 growing to $312.6 million in 2005 and $345.4 million in the trailing twelve months (TTM).

Earnings during this period have also steadily grown from $.64/share in 2001 to $1.43/share in 2005 and $1.52/share in the TTM.

An added bonus is the fact that the company pays a dividend which has also been steadily increased from $.09/share in 2001 to $.20/share in 2005. Interestingly, the company has been retiring shares with 51 million in 2002, dropping to 48 million in 2005 (although rebounding slightly to 49 million in the TTM).

Free cash flow has been positive with $66 million reported in 2003, $45 million in 2004, $72 million in 2005 and $99 million in the TTM.

The balance sheet also looks solid with $90.2 million in cash which by itself can pay off both the $66.4 million in current liabilities and the $18.0 million in long-term liabilities comgined. Calculating the 'current ratio' gives us a total of cash and other current assets at $157.4 million, which when compared to the $66.4 million of current liabilities results in a current ratio of 2.37.

4. What about some valuation numbers on this stock?

Reviewing Yahoo "Key Statistics" on FactSet Research, we find that this is a mid-cap stock with a market capitalization of $2.25 billion. The trailing p/e is a bit rich at 30.29, with a forward (fye 31-Aug-07) p/e of 25.97. The PEG is also a bit rich with a ratio of 1.62.

The Fidelity.com eresearch website demonstrates that in terms of the Price/Sales ratio, FDS is also richly priced with a ratio of 6.3 leading the "Information/Delivery Services" industrial group. Following FactSet is Wright Express (WXS) at 4.9, Jupitermedia (JUPM) at 4.4, Alliance Data Systems (ADS) at 2.6 and DST Systems at 1.8. By this measure as well, FDS is priced richly.

Returning to Yahoo, we find that there are 48.68 million shares outstanding with 37.61 million that float. As of 4/10/06, there were 2.32 million shares out short representing 5.6% of the float or 8.2 trading days of volume. I believe any short interest over 3 days is significant and may contribute to a "squeeze" of the short sellers.

As noted earlier, the company pays $.20/share in dividends yielding 0.5%. Also as noted above, the company last split its stock in a 3:2 fashion.

5. What about a chart?

Looking at the "Point & Figure" chart on FDS from StockCharts.com:

We can see that this stock actually was trading lower from $28/share in April, 2002, to a low of $14/share in August, 2002. Since bottoming at that time, the stock has actually been trading stronger, first breaking resistance at $17, and now moving sharply higher to close at $46.23, which appears to be a new high for the stock.

6. Summary: What do I think?

Let's review some of the things that I have discussed above on this stock. First of all, the stock moved nicely higher today on an upgrade from Piper Jaffray. The latest quarter showed everything I like to see in a quarterly report: revenue growth, earnings growth, beating expectations and raising guidance.

The Morningstar.com report is also quite nice with steady revneue and earnings growth the past few years. The company even pays a small dividend and has been increasing it each year. In addition, the company has reduced the number of shares outstanding which is also an important detail of this analysis.

The company is generating an increasing level of free cash flow and has a strong balance sheet.

Valuation wise, the p/e is above 30, the PEG is just over 1.5, and the price/sales is just a little over 6, making it the priciest stock in its industrial group. On a postiive note the relatively large amount of short interest may be supportive and may even be driving the stock higher in the face of solid earnings. And finally, the stock chart looks strong and does not appear overextended.

I like FDS but it is not a 'bargain'. Any blemish could find this stock correcting. However, there are few other stocks with as consistent a growth bias as FactSet and this has been an excellent pick for me as demonstrated by the price appreciation from 2003 and 2005. Unfortunately I don't own any of these shares!

Thanks so much for stopping by and visiting. If you have any comments or questions, please leave them on the blog or email me at bobsadviceforstocks@lycos.com. If you get a chance, please do come and visit my Stock Picks Bob's Advice Podcast Site.

Bob

Posted by bobsadviceforstocks at 10:55 PM CDT | Post Comment | Permalink
Updated: Tuesday, 16 May 2006 11:49 PM CDT