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Eagle Materials Upgraded to Strong Buy

MAS EXP

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On January 1, Zacks Investment Research upgraded Eagle Materials Inc. (EXP - Snapshot Report) to a Zacks Rank #1 (Strong Buy) as the stock continues to gain momentum from improving housing fundamentals.

Why the Upgrade?

Eagle Materials reported solid second quarter fiscal 2013 results and appears set to do well again when it reports third quarter results later this month.

On October 29, Eagle Materials reported fiscal second quarter (ended September 30, 2012) earnings of 49 cents per share. The earnings beat the Zacks Consensus Estimate by 4.26%. The result soared 250.0% from the prior-year quarter, driven largely by wallboard pricing gains, higher volumes in all lines of business and lower recycled fiber input costs.

Net sales came in at $165.0 million, up 22.0% from the prior-year quarter, driven by higher demand for its products as well as increased selling prices.

Estimates are continuously rising, reflecting expectations for significantly higher year-over-year earnings growth rates in fiscal 2013 and 2014.

Over the last 90 days, the Zacks Consensus Estimate for fiscal 2013 has gone up by 5.1% to $1.64, reflecting year-over-year growth rate of 198.4%. The Zacks Consensus Estimate for fiscal 2014 has advanced 12.7% to $2.57 over the same time frame, reflecting year-over-year growth rate of 56.6%.

The U.S. housing industry is improving steadily. Demand for new home construction is gaining traction, which is leading to higher demand for Eagle Materials’ products. Home prices have also started moving up lately with market demand gaining momentum.

The company has bright prospects ahead thanks to an improving end-market outlook, cost reduction efforts and an acquisition-based growth strategy. Moreover, the acquisition of two cement plants from Lafarge North America late last year is expected to increase Eagle Materials’ cement capacity by approximately 60%, thereby allowing it to take advantage of the U.S. construction industry’s recovery.

Eagle Materials will report its fiscal third quarter results on January 29. The Zacks Consensus Estimate at the moment is 43 cents per share. With a favorable Zacks Rank and Earnings ESP of 4.7%, Eagle Materials looks poised to beat the Zacks Consensus Estimate in the quarter.

Other Stocks to Consider

Eagle Materials’ peer Masco Corporation (MAS - Analyst Report), which carries a Zacks Rank #2 (Buy) is also performing well and is worth considering.

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