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Shares of Headwaters Incorporated attained a 52-week high of $13.98 during intraday trading on March 4, finally closing lower at $13.65.

The company has delivered a robust year-to-date return of about 43.8%, outperforming the S&P 500 return of 26.1%. Headwaters has a market cap of $997 million. Average volume of shares traded over the last 3 months was approximately 605K.

What’s Driving Headwaters?

Shares of Headwaters have been trending upward since the company reported upbeat first-quarter fiscal 2014 (ended Dec 31, 2013) results on Feb 4. Adjusted earnings improved 40% to 7 cents per share from 5 cents in the prior-year quarter. Results were also favorable when compared with the Zacks Consensus Estimate of a loss of one cent per share.

Headwaters modified its adjusted earnings before interest, tax, depreciation and amortization (EBITDA) range of $125–$140 million to $130–$145 million for fiscal 2014. The company will also continue to pursue opportunities to ensure timely repayment of a debt due in 2014.

Headwaters also projected expansion of adjusted EBITDA margins in both light building products and heavy construction materials segment on the back of organic revenue growth and ongoing improvements in manufacturing efficiencies.

Headwaters’ shares further gained support on the announcement of its acquisition of Pennsylvania-based small fly ash marketer on Feb 19. The acquisition will augment the company’s high quality fly ash supply, improving its competitive position in the Northeast, given the lack of high quality fly ash in the region.

Headwaters projects incremental fly ash sales of more than 150,000 tons from sales primarily in the Pennsylvania and New York markets. The transaction will be accretive to earnings in 2014.

Headwaters is well positioned to benefit from the strong performance of its light building products and heavy construction materials segments. A significant contribution from margins, together with the growing demand will help the company generate adequate cash, thereby facilitating debt reduction and enhanced returns to investors.

In addition, Headwaters acquired 80% equity interest in the business of Roof Tile and is set to acquire 40% equity interest in the joint venture with the latter to market Tag & Stick. Acquisitions will be accretive to earnings in 2014 and will help in increasing sales and distribution networks in the building products market in Florida. They are also likely to stimulate sales growth on a geographical basis.

Other Stocks to Consider

Currently, Headwaters carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include CaesarStone Sdot-Yam Ltd. (CSTE - Free Report) , USG Corp. (USG - Free Report) and Quanex Building Products Corp. (NX - Free Report) . While CaesarStone sports a Zacks Rank #1 (Strong Buy), USG and Quanex Building have a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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Caesarstone Ltd. (CSTE) - free report >>

Quanex Building Products Corporation (NX) - free report >>

USG Corporation (USG) - free report >>

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