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Difficult Q4 Diminishes Raymond James' Bullishness On Drywall Producers

Dave Royse

Some wallboard producer stocks were hammered Wednesday after a weak wholesale report from an industry association and a sell-side downgrade of a sector leader.

The Gypsum Association reported this week that wholesale industry volume declined by double digits in the fourth quarter, leading Raymond James to make its second cut this month to near-term volume expectations and downgrade the wallboard producer Continental Building Products Inc (NYSE: CBPX).

Raymond James said it was reducing wallboard production estimates for several manufacturers in the wake of the industry report. The reduction follows an estimate cut earlier in January to account for an updated housing start forecast that projects a modest year-over-year decline in new home building in 2020.

The Analyst

Analyst Joshua Wilson downgraded Continental Building Products from Strong Buy to Market Perform.

Wilson reiterated Market Perform ratings on USG Corporation (NYSE: USG) — which is the largest U.S. wallboard distributor — and Eagle Materials, Inc. (NYSE: EXP). The analyst cut December year-over-year volume estimates for both companies. 

The Thesis

The Gypsum Association report said U.S. wholesale industry volumes were negative 10 percent year-over-year in Q4.

The weakness was geographically broad, with most areas seeing drops in the high single digits, Wilson said in a note. Raymond James won’t yet lower first-quarter volume assumptions, though, and the analyst noted that December was stronger than November.

“We continue to believe the combination of year-over-year growth in housing starts, the lack of major manufacturing capacity additions and inflation pressures will result in positive price realization in February, though clearly the weak Q4 volumes add uncertainty to this outcome,” Wilson said. 

Price Action

Continental Building stock was trading higher by 1.15 percent at $24.66 at the time of publication Thursday, while Eagle Materials was up 2.6 percent at $66.02 and USG was down marginally at $43.13.

Related Links:

Continental Building Products Reports Third Quarter 2018 Results

Longbow Sees 40% Upside In Eagle Materials, With Positive Catalysts Ahead

Latest Ratings for CBPX

Date Firm Action From To
Jan 2019 Raymond James Downgrades Strong Buy Market Perform
Nov 2018 Citigroup Maintains Neutral Neutral
Oct 2018 Raymond James Maintains Strong Buy Strong Buy

View More Analyst Ratings for CBPX
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