USG Corporation (NYSE:USG) – USG is expected to realize higher wallboard pricing based on better U.S. new construction, driving demand for wallboard and increasing capacity utilization. However, it seems as if these assumptions are more than fully reflected in current shares (9.6x PV normalized EBITDA estimate), pointing to very high expectations on future earnings power. In addition, it is interesting to note that only 21% of sales are tied to new U.S. construction, with ~30% tied to commercial, which is expected to remain a drag in 2013. Credit Suisse has set a target price of $22, which implies 25% downside from the current levels. The $22 target price is based on a forward multiple of 8.0x and a normalized EBITDA estimate of $652 million, which is appropriate even with positive expectations for the recovery in new U.S. construction, better wallboard pricing, and increased capacity utilization.
Foolish Bottom Line
It is interesting to note that though all three of the stocks are expected to witness a growth in earnings in the near future, the growth has already been priced in. Therefore, I will recommend a neutral position on these three stocks.
The article Should You Buy These 3 Stocks on a Housing Recovery? originally appeared on Fool.com and is written by Masam Abbas.
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