Is Eagle Materials Stock A Suitable Foundation On Which To Build Your Wealth? – Seeking Alpha
In this article, I provide insight into the building materials firm Eagle Materials (NYSE:NYSE:EXP). We examine the business and its success and present a case to answer the question in the headline. By looking at the segments that EXP operates in, their record and profitability, and the current opportunity, we assess whether Eagle Materials is a solid play and a foundation for growing wealth.
Eagle Materials competes in segments such as:
- Wallboards, where they are the fifth largest US wallboard producer. The focus on both costs and efficiency has allowed a reduction in wastes and low-cost production of gypsum wallboard.
- Cement, with facilities in Illinois, Kentucky, Missouri, Nevada, Ohio, Oklahoma, Texas, and Wyoming. A 2020 acquisition in Kentucky included distribution terminals and increased their capacity by about 25%.
- Aggregates and concrete focus on highway construction and maintenance, in addition to residential and commercial buildings.
Together, these are complementary segments with different growth drivers that should provide Eagle Materials with robust revenue growth and profitability over different market cycles. Recent years have seen increases in revenues, particularly in cement and gypsum wallboards (Figure 1)
With their headquarters in Texas, they have a strong presence in multiple states often through focused acquisitions that aim to complement and extend distribution reach (Figure 2). The Gypsum wallboard and paperboard system they have established has a strong U.S. Sunbelt geographic focus.
For infrastructure spending, there is stability over the next several years with many budget allocations set. While the price inflation over the next several years will possibly put pressure on EXP’s performance, the growth in volumes should be there. Overall, I see long-term growth in infrastructure spending and investment that will lift EXP’s results. The ASCE’s Comprehensive Assessment of America’s Infrastructure paints a picture of significant deficits that need to be addressed. The gaps will not be closed quickly or easily.
Backlogs in the overall home construction industry should support demand for many of their materials in 2022. In the long-term, the demographics of 30- to 39-year-olds are anticipated to continue to buy or build housing for families. Further, they have been able to pass on many of the rising costs with higher prices to customers.
One of the challenges …….