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Why USG (USG) Stock Is Falling Today

Stocks in this article: USG

NEW YORK (TheStreet) -- USG (USG) was falling -5.5% to $30.55 Thursday after missing analysts' expectations for earnings and revenue for the first quarter.

For the first quarter USG reported earnings of 14 cents a share, missing the Capital IQ Consensus Estimate of 19 cents a share by 5 cents. Revenue rose 4.4% year-over-year to $850 million for the quarter, though it fell short of the $872.71 million consensus.

The company reported an operating profit of $66 million for the first quarter, compared to a $49 million operating profit in the first quarter of 2013.

"Despite the harsh winter conditions across most of the United States during the first quarter, we delivered positive operating results and net income," chairman, president, and CEO James S. Metcalf said in a statement. "We also made significant progress with our Plan to Win by finalizing our joint venture with Boral and calling the remaining $75 million in 10% convertible notes."

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TheStreet Ratings team rates USG CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate USG CORP (USG) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • USG's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 12.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • USG CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, USG CORP turned its bottom line around by earning $0.44 versus -$1.71 in the prior year. This year, the market expects an improvement in earnings ($1.86 versus $0.44).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The gross profit margin for USG CORP is rather low; currently it is at 22.62%. Regardless of USG's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -0.32% trails the industry average.
  • The debt-to-equity ratio is very high at 3.69 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, USG has managed to keep a strong quick ratio of 2.23, which demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: USG Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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