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Bear of the Day

Since Texas Industries (TXI) reported its fiscal 2014 second quarter results, consensus estimates have fallen for both this year and next. It is a Zacks Rank #5 (Strong Sell) stock.

Shares of Texas Industries do not look cheap at 78x forward earnings. Although the company may be a buyout target, investors should consider waiting for the company's earnings momentum to improve before buying the stock.

Texas Industries, Inc. supplies cement, aggregate and consumer product building materials for all types of construction. Its primary markets are Texas and California.

Second Quarter Results

Texas Industries reported its fiscal 2014 second quarter results on January 8. Adjusted earnings per share came in at -35 cents, missing the Zacks Consensus Estimate of -22 cents. It was the company's second straight earnings miss.

Net sales rose 25% to $208.9 million, but this was well below the consensus of $222.0 million. The company cited a number of "non-recurring and short-term factors" that negatively impacted its results, including "[a]bnormal periods of inclement weather in Texas".

The company reported top-line growth in each segment (Cement, Aggregate and Concrete), but operating income fell -39% in 'Cement'.

Estimates Falling

Falling the Q2 miss, analysts revised their estimates lower for both 2014 and 2015. This sent the stock to a Zacks Rank #5 (Strong Sell) stock.

The 2014 Zacks Consensus Estimate is now -$0.44, down from $-0.30 just 30 days ago. The 2015 consensus is currently $1.59, down from $1.65 over the same period.

In fact, falling estimates can be seen throughout the 'Building - Cement, Concrete, Aggregate' industry. It ranks 236 out of 265 industries based on earnings momentum, according to the Zacks Industry Rank. That puts it in the bottom 11%.

Premium Valuation

Shares of Texas Industries trade at a lofty 78x 12-month forward earnings, well above its historical forward multiple of 13x. One reason for this premium is because it was reported that the company is considering a sale. This news sent shares soaring.

The Bottom Line

Considering the industry headwinds and its premium valuation, investors should wait for earnings momentum to improve before buying Texas Industries.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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