Story updated at 10 a.m. to reflect market activity.
Shares of USG gained 1.4% to $29.97 in morning trading.
The firm set a price target of $31 for the company. The downgrade is due to USG's disappointing first quarter performance with weaker than expected wallboard prices and sales according to Barclays analysts.
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Separately, 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 compelling growth in net income. 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 3.7%. Since the same quarter one year prior, revenues slightly increased by 4.4%. 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 ($1.85 versus $0.44).
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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 21.29%. 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, USG's net profit margin of 5.29% compares favorably to the industry average.
- The debt-to-equity ratio is very high at 3.46 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, USG's quick ratio is somewhat strong at 1.33, demonstrating the ability to handle short-term liquidity needs.
- You can view the full analysis from the report here: USG Ratings Report