TXI Market Research & Analysis Report
Updated Dec 13, 2013

Growth and Balance Sheet

The company reported that it earned $0.429 million, or 2 cents basic earnings per share (1 cents diluted earnings per share), for the first quarter of fiscal year 2014 ending August 31. That's up from a loss of $2.66 million, or 8 cents basic and diluted loss per share for the same quarter last year. Revenues for the first quarter were $233 million, up from $175 million for the same quarter last year. Cement segment revenue was up 19.6% to $104.4 million, due to increase in cement tons shipments, average price per ton, and decrease in cost  of sales; Aggregates segment revenue was up by 26.7% to $35.7 million, due to increase in stone, sand and gravel shipments, and increase in average price; Concrete segment revenue was up by 89.2% to $98.2 million, due to nearly  doubling in shipments (due  to acquiring of 42 ready-mix concrete plants) and increase in average price.  The gross  income margin was  13.16% compared to 8.71% for the same quarter last year.  The company generated -$6  million cash from operations for the first quarter of fiscal year 2014, compared to $2.1 million for the same period last year. TXI forecasted loss per share for the second quarter of fiscal year  2014 are from -31 cents to -19 cents, compared to a loss of 41 cents for the second quarter of fiscal year 2013. The financial strength indicators of the company are lagging behind the industry averages.  The current  ratio of the company is 2.68,  and the industry average ratio is 4.07.  Also the quick ratio of 1.79  is at  worse  levels than the industry average of 3.41. The interest coverage ratio of 1.17 is at worse levels than the industry average of 1.77. In terms of efficiency, the inventory turnover ratio of 5.95 is slightly better the industry average of 5.73; however, the asset turnover ratio of 0.47 is at worse levels than the industry average of 0.85

Valuation

TXI PE stands at 60.60 virtually leveled with the industry average of 59.11, but above the S&P 500 average of 17.80. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 8.04x to 188.28x trailing 12-month earnings. TXI's current Price/Sales of 2.15is  leveled with  the average of its industry  of 2.16.  TXI’s head to head comparison to its main competitors  show  that the company  has  the  lowest  gross margin,  and  lower than the industry average; moreover, the company’s operating margin is also lower than the competitors’ achieved margins, and well below the average for the industry. The quarterly revenue growth of the company is one of the highest in comparison to the competition,  and well above the industry average. The stock trades at a middle  rangeP/E  when compared to  its  competitors,  but at one of the highest  P/S  ratio.  The stock is currently trading  above  its intrinsic value of $37.27,  this suggests that the stock is currently overvalued at these levels. The beta of 0.89  implies  lower  volatility of the stock with respect to the S&P 500.  TXI  has  not  shown  favorable  earnings consistency over the last three years. However, TXI’s earnings per share over the last three years have grown by 6.33%, and the company has managed to turn bottom line losses into positive earnings. Moreover, the current quarter earnings in comparison to the same quarter last year have grown by 33.55%. The company Total Debt to Equity of 87.06 is above  the required maximum,  and  it is  above  the industry average of  53.9.  TXI’s current price levels are  above  the  maximum level,  24.62% below the 52 week high of $75.30, and the technical indicators are negative. The majority of the analyst ratings are hold.  TXI currently does not pay dividends.

About TXI

Texas Industries, Inc. is a supplier of heavy construction materials in the southwestern United States. The Company operates in three segments: cement, which produces gray portland cement and specialty cements; aggregates, which produces natural aggregates, including sand, gravel and crushed  limestone, and specialty lightweight aggregates, and consumer products, which produces ready-mix concrete. The Company's cement production and distribution facilities are concentrated primarily in Texas and California. As of May 31, 2012, the Company had 82 manufacturing facilities in six states. On July 29, 2011, the Company acquired three ready mix concrete plants and one sand and gravel plant, located in the Austin metropolitan market. On April 20, 2012, the Company sold its aggregate rail distribution terminal including 154 acres of land and associated assets located in Stafford, Texas, south of Houston. On April 16, 2012, the Company sold its Texas based packaged products operations.

Competitor Comparison

Texas Industries Inc. (NYSE:TXI) N.V.

Highlights

Texas Industries, Inc., together with its subsidiaries, engages in the manufacture and sale of heavy construction materials in the southwestern United States.  The stock closed yesterday’s  trading  session at $56.76. In the  past year, the stock has hit a 52-week low of $46.95  and 52-week high of $75.30.  The intrinsic value of the stock is below  the current price. TXI has a market cap of $1.67 billion and is part of the Industrial Goods sector.

• Strategically located in the largest cement markets in the US
   

• Energy prices 
• Low growth opportunities

TXI Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend.  TXI's 52 week high is $75.30, current price is $56.76, is 24.62% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 60.60 the  average industry P/E ratio is 59.11 and is above the S&P 500 P/E ratio of 17.80.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are  right in line with that of the shareholders. Insiders own  25.12% of TXI stock. Management's representation is  large enough. This does  satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD,  RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

TXI  is trading in the range of $55.46  -  $59.07  in the past 30 days. The stock has been showing support around the level of $55 and resistance in the $75 range. The stock is trading  above  the 50-Day Moving Average but  below  the  200-Day Moving Average. The RSI(14) is 56.31.  TXI  was in a strong bullish trend since  July 2012 until the  May 2013 when it hit the highest level since 2008 of $75.30.  As can be seen from the graph on page 1  the stock is falling ever since  (red line).  The stock seems that have found support  around  $54 (yellow line).  Currently the stock seems that is consolidating, however we can see that there is a descending triangle forming (yellow and red line)  which is a continuation pattern.  Moreover, on a weekly chart there is a  head and shoulder pattern formed and the  price is currently at  the neckline. If the price goes below the neckline,  it will be a clear signal of a bearish trend.  Our indicators give a negative view of TXI.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 2 Buy, 1 Outperform, and 6 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is  allowed, but the following year's earnings should be higher than the previous year. TXI’s annual EPS for the last 5 years were -0.64, -1.4, -2.33, 0.27, and 0.87 this type of earnings action is not favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry.  TXI’s Total Debt/Equity of 87.06 is above the required maximum, and it is above the industry average of 53.9.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention.  TXI’s  EPS growth for this quarter relative to the same quarter a year earlier is 33.55%, aboveour target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%.  TXI’s annual earnings growth rate over the past five years is 6.33%, below the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.