Description

Centex Construction Products is a bulk producer of cement and wallboard (sheetrock). A spinoff of Centex Corp. in 1994, CXP has grown Sales at a rate of 16% over the last 5 years. 5 year EPS have increased 42% over 5 years, with the larger margin over sales partly due to decreased amount of shares available, as the company has repurchased over 5 million shares since 1994. Growth in sales and EPS have been steady year to year, with revenues increasing from 336 million in 1999, to 418 million at end of fiscal year 2000. CXP has upgraded production capabilities at 2 of its wallboard plants and 2 of its cement operations. The future estimates of most analysts for this company's growth rate are not positive in the coming year. I believe this is due to rising interest rates in the past, which obviously affects construction as a whole. Even if interest rates continue to rise (doesn't look like it!), CXP should still be able to continue its growth for several reasons; #1 CXP bought approximately 12% of its cement from other wholesalers last year, this translates to less profit due to lower profits margin. This was largely due to the major renovation done to the Laramie WY plant, which kept the plant shut down for over a month in peak season. #2 Public works construction (things our tax dollars pay for! i.e. highways, public buildings...), accounts for 52% of cement comsuption in the U.S. This is reinforced by the Bill Congress passed in 1998, allotting 218 billion for spending on highways over 6 years. Also, consider that approximately 28% of the concrete used (per Portland Cement Assoc) in the U.S. in 1999, was imported. This wasnt due to cheaper import prices, but the fact that U.S. producers cannot keep up with demand. With all this going for CXP, consider it has a measly $320,000 in LTD, with 96 million in cash, has increased its production capabilites, and has grown steadily in the last 5 years in a very competitive industry. It has a solid cash flow, with a price/free cash flow of 4.65, which is about 7 times less than the industry average, its 5 year average of EBITD of 37% is better than the industry's of 24%.

Catalyst

With better long and short term growth rates than it's peers, a P/E of about 1/2 the industry average, and a stellar balance sheet, it's only a matter of time before the stock price catches up to the companys worth.