USG: Poised to Jump on a Housing Recovery - Barron's

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Building for the Future by Dimitra Defotis

Summary: Wallboard maker USG Corp. (USG) emerged from asbestos litigation-induced bankruptcy last year just as the housing market peaked. From $11.05 in 2005, USG hopes to make $2/share in 2007-8. While USG's share price halved commensurately to $48, other builder suppliers like American Standard (ASD), Masco (MAS) and Owens-Corning (OC) have weathered the housing slump better because USG is so strongly identified with wallboard. Gypsum market demand should fall 10% this year, and y/y prices were down 9%; USG controls 30% of the industry. Yet diversification efforts have made just 45% of USG's $5.8 billion revenues derive from new homes; the rest comes from sturdier residential remodeling (15%) and commercial construction (40%) markets. USG invested $900 million+ in faster production facilities, expanded product lines, and reduced wallboard output 20% to stem price declines -- but also used the drop in prices to acquire businesses like a lower-cost Mexican manufacturer and L&W Supply distributors. Warren Buffett's Berkshire Hathaway believes in USG's value; it owns 17% and counting. Barron's Bottom Line: Bulls say when the housing market turns EPS could triple, doubling shares back up to $90.

Related Links: USG Corp: Smart Acquisition for This Warren Buffett Stock • USG: Hold On Tight For the Upside • Ten Takeaways From Buffett's Annual Letter

Comments

[Sr. Pessimist:]

Probably the further away things get from oil here the better off the entire economy will do. Plus, some sort of a rebound will buoy the housing market. Lots of people just have no way of getting by.

It's just eerie how the stock market indexes are independent from historical precedent. Moreover, I wonder what effect Wolfowitz's resignation in late June will have on the ability of the US Government to continue to borrow from foreign countries and purchase futures in stock markets. What if the only people really losing out on that one were the hedge fund owners?

2007 May 21 04:32 AM