Why USG Corporation Is A Good Buy

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 |  About: USG Corporation (USG)
by: Leonid Kanopka

USG Corporation (NYSE:USG), through its subsidiaries, is a manufacturer and distributor of building materials. The company produces a range of products for use in new residential, new non-residential, and residential and non-residential repair and remodel construction, as well as products used in certain industrial processes. The current market price is $16.95 with a one-year analyst price target of $19.14. This represents a 12.92% upside potential, but I feel this stock will see substantially higher gains moving forward into 2013 and 2014.

On 07/25/12, the company announced quarterly earnings of -0.15 per share, a negative surprise of -27.1% below the consensus -0.12. Over the past 4 quarters, the company has reported 2 positive (>2%) and 2 negative surprises. The average surprise for this time period has been 0.8%. With these earnings results, combined with a lack-luster housing market, the price of the stock has plummeted from the $40-$50 range before the housing collapse. Currently, USG's debt-to-capital of 93.6% is the highest within its Construction Materials industry, and its ROE is the lowest within the industry. Despite all of the turmoil and negative publicity USG has maintained its 5-Star S&P rating.

Index - P/E - EPS -2.83 Insider Own 1.32% Shs Outstand 105.84M Perf Week -0.24%
Market Cap 1.79B Forward P/E 80.71 EPS next Y 0.21 Insider Trans 30.93% Shs Float 90.30M Perf Month -18.51%
Income -299.00M PEG - EPS next Q -0.08 Inst Own 75.46% Short Float 25.23% Perf Quarter -1.74%
Sales 3.18B P/S 0.56 EPS this Y 6.88% Inst Trans 1.19% Short Ratio 6.85 Perf Half Y 11.81%
Book/sh 1.11 P/B 15.27 EPS next Y 124.30% ROA -7.87% Target Price 19.86 Perf Year 72.61%
Cash/sh 4.53 P/C 3.75 EPS next 5Y 3.00% ROE -92.71% 52W Range 5.75 - 20.98 Perf YTD 66.83%
Dividend - P/FCF - EPS past 5Y -68.97% ROI -9.12% 52W High -19.21% Beta 2.82
Dividend % - Quick Ratio 1.83 Sales past 5Y -12.24% Gross Margin 9.91% 52W Low 194.78% ATR 1.06
Employees 8780 Current Ratio 2.44 Sales Q/Q 8.41% Oper. Margin -3.18% RSI (14) 44.67 Volatility 4.85% 5.87%
Optionable Yes Debt/Eq 19.59 EPS Q/Q 20.52% Profit Margin -9.41% Rel Volume 1.09 Prev Close 16.38
Shortable Yes LT Debt/Eq 19.53 Earnings Jul 25 BMO Payout - Avg Volume 3.33M Price 16.95
Recom 2.80 SMA20 -9.08% SMA50 -2.75% SMA200 19.17% Volume 3,627,625 Change 3.48%
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On the flip side, USG has a lot of room for growth and I believe the stock is at a bargain price. USG's average wallboard price of $130 per thousand square feet in 2012's first quarter was 19% above the level in the 2011 quarter. This largely reflected changing market conditions, and USG's decision and capability to offer a full-year wallboard price for its customers at what it called a significantly higher level.

Real estate website Zillow is forecasting that the end may be near, expecting home values nationwide to bottom during the final three months of 2012. As a matter of fact, some believe that the housing market has already started to turn around. USG has idled or permanently closed 3.8 billion square feet of wallboard capacity since mid-2006, its plants operated at only 43% of capacity in 2011. Despite this, USG's net loss is shrinking sharply in this year, currently at $0.10 a share, versus an operating loss of $3.02 a share in 2011.

In addition, Berkshire Hathaway currently holds a 16% stake in the company, which may further reflect anticipation of an increase in stock price. For fiscal year 2013, analysts estimate that USG's earnings per share will grow by 129% to $0.13. I believe while this stock has endured substantial amounts of pressure from the market, it is at the right price to see gains in the future. This is a staple for any long-term portfolio looking for gains.

Disclosure: I am long USG.