Some traders are great at making super-fast plays on esoteric industries, some of which may not even have products and earnings yet. Others like to wait a bit and see how things shape up, then decide to jump in, while still others like to trade large cap or mid-cap stocks when there’s some big news, with either a surge or a sharp drop in price. Then there are some long-term buy-and-hold investors for whom the dullest of companies in the dullest of industries, companies who make something so tangible you can go see it, touch it, feel it, and for whom such earnings and growth prospects are nearly as tangible.
Some of the basic industries fit that description, and one such company is Texas Industries, Inc. (NYSE: TXI), in the concrete business, with markets for its universally used product spread across the southwest from Arkansas to California. Texas Industries makes gray portland cement, specialty cements, aggregates and other related building products for the construction industry. Nothing fancy there. It is a major supplier in the geographical areas it serves, and part of its strategies include supplying to areas that build year-round. The company attempts to keep a strong presence in these areas by selling related products such as mortar, sand, crushed gravel, masonry cements, white portland cement, and oil well cements. It also produces some consumer packaged products, such as a ready-mix cement.
Texas Industries has a market cap of $1.5B, and in 2007 had revenue of just under $1B, which produced a net income of $109 million. Its last twelve month earnings were $3.28 per share, though for the full year ending May, 2008, it projects only $3.13 EPS due to the slowdown in construction that has already taken place in the economy. The stock price has punished for this, as it has traded in a 45.38-93.80 range but has recently been in the low and mid-50s.
Texas Industries, as a construction industry participant, is both the beneficiary and the victim of the leading edges of where spending goes, or doesn’t go, for major construction projects. With the housing downturn nationwide, and especially in one of its main markets, California, Texas Industries bore the brunt of this lessened spending. Going forward, however, analyst projections peg 2009 earnings at a much healthier $5 or more per share, yet even if that increase is sliced to a much more conservative number, you can see that the revenue/income increase should be substantial.
Not to forget, Texas Industries does substantial business in other southwest markets not nearly so affected as California, and cement is hardly limited in its use to homebuilding. Offices, business and retail business, as well as road paving are all construction segments that rely heavily on the use of cement. Also, with a nation’s infrastructure in need of constant renewal, you can find substantial amounts of concrete usage for bridge repair and similar projects. Furthermore, as economic stimulus, lower interest rates and credit improvement and availability works its way through the economy, as well as the expected upturn in business and industrial spending, Texas Industries is poised to benefit from this impending recovery. A long term five and ten year chart on this stock shows substantial growth in the stock price, and as the market recovers, this long-term trend is expected to continue.
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