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Eagle Materials

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Eagle Materials Inc. (EXP - Free Report) attained Zacks #1 Rank (Strong Buy) status on October 3 and then reached its 52-week high on October 5, , shortly after announcing the acquisition of two cement plants. The acquisitions are expected to significantly increase its cement capacity. This construction materials company is also gaining momentum from improving housing fundamentals, which is leading to volume growth across all its businesses.

First Quarter Up

On August 2, Eagle Materials reported fiscal first quarter earnings of 31 cents per share. The result improved significantly from the prior-year quarter, driven by sales growth, cost savings and improvement in overall construction activity.

Net sales came in at $154.0 million, up 29.0% from the prior-year quarter, driven largely by volume growth across also business lines. Revenues also beat the Zacks Consensus Estimate of $150 million.

The company’s principal lines of business are cement and gypsum wallboard. Cement revenues improved 26% due to volume growth, while Gypsum Wallboard and Paperboard revenues grew 27% due to average sales price increases.

Gross profit was $22.9 million versus $4.4 million in the prior-year quarter.

EXP will report again on October 23. The Zacks Consensus Estimate at the moment is 47 cents per share.

Bright Outlook for End Market Growth

The U.S. housing industry has begun to show signs of improvement. Demand for new home construction is gaining traction, which will eventually lead to higher demand for Eagle Materials products. Management is expecting improved construction activity in calendar 2012 than in 2011, both in private and public construction markets.

The stock is being driven by an improving end market outlook, cost reduction efforts and an acquisition-based growth strategy.

Cement Plants Buy

On September 26, 2012, Eagle Materials announced a definitive agreement to acquire two cement plants in Sugar Creek, Missouri and Tulsa, Oklahoma, along with related assets, from Lafarge North America for $446 million. This acquisition will increase Eagle Materials’ cement capacity by approximately 60%, thereby allowing it to take advantage of the recovery of the U.S. construction industry. The deal is expected to close in November/December this year.

Earnings Estimates Rising

Over the last 60 days, the Zacks Consensus Estimate for fiscal 2013 has gone up by almost 2.0% to $1.55, reflecting a year-over-year growth rate of 182.7%. The Zacks Consensus Estimate for fiscal 2014 has advanced 6.5% to $2.13 over the same timeframe, reflecting a year-over-year growth rate of 37.1%.

Decent Valuation

Eagle Materials currently trades at a forward price-to-earnings (P/E) of 31.92x, in line with the peer group average. On a price-to-sales and price-to-book basis, the stock is trading at premiums to the industry averages. However, the stock has a trailing 12-month return on equity (ROE) of 8.8%, which is almost double the peer group average of 4.4%.

Chart Showing Consistent Advance

Shares of Eagle Materials have been rising consistently since the end of September 2011 and reached a 52-week high of $50.90 on October 5, a few days after announcing the Lafarge deal. The stock price has almost tripled since the September/October 2011 lows when the housing market was fragile.

Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $42.59 and $35.16, respectively. In fact, the stock has been consistently trading above its 50-day moving average since early August and the 200-day moving average since the end of September 2011.

Volume is strong, averaging roughly 795K daily. The year-to-date return for the stock is 93.4% compared with the S&P 500’s return of 16.2%.

Based in Dallas, Texas, Eagle Materials is a manufacturer and distributor of building material and construction products like Cement, Gypsum Wallboard, Recycled Paperboard and Concrete and Aggregates. These products are used in construction and renovation of houses, roads, bridges, commercial and industrial buildings across the U.S. Currently, the company has a market cap of $2.25 billion.

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