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Building Materials
Upgrading Eagle Materials (UW to OW) and Titan
(UW to N)
Building Materials
Mike BettsAC
(44-20) 7325-8976
mike.f.betts@jpmorgan.com
J.P. Morgan Securities Ltd.
See page 54 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies
covered in this report, at no cost to them, where such research is available. Customers can access this independent research at
www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.
Figure 1: Price target vs. share price
% difference
58%
56%
49%
40%
36%
30%
28%
20%
17%
7%
-20%
170%
-100% 0% 100% 200%
Cemex
Saint-Gobain
Lafarge
Eagle Materials
CRH
Holcim
Titan
Martin Marietta
Ciments Francais
Vulcan
Buzzi Unicem
Italcementi
Source: J.P. Morgan estimates.
• Two rating changes: We upgrade Eagle Materials (UW to OW) and
Titan (UW to N). These changes reflect both our expectation that the US
will be the first major construction market to recover as well as the
differences currently between our 12-month mid-cycle EPS-based price
targets and the current share prices.
• Changes in EPS estimates. These are shown in Table 1. Our 2008
estimates have been adjusted mainly for the average exchange rates in the
fourth quarter. There are two major adjustments to our 2009 estimates.
First, we have lowered them for the recent weakness in the US dollar,
which has declined by 8% against the euro since the beginning of
December. Second, we have reduced them for the deterioration in the
outlook for emerging markets. For example, cement consumption
declined by 19-21% in November in Pakistan, South Africa and the
Ukraine.
• Amendments to target prices. Table 1 also shows the changes in our 12-
month (January 2010) target prices. The changes are mainly caused by the
recent weakness in the US dollar and the deteriorating outlook in
emerging markets. For Titan, the negative impact from these factors on
our price target has been offset by our recognition of the greater recovery
prospects in its Southern US businesses. We now assume recovery
potential similar to our forecasts for Cemex and Vulcan’s businesses in
that region.
Table of Contents
Rating changes.........................................................................4
Upgrades ......................................................................................................................4
Changes to EPS estimates ......................................................6
Recent weakness in US$..............................................................................................6
Reducing forecasts for emerging markets....................................................................7
Lowering 2009 price and cost estimates for US aggregates ........................................9
Revised estimates.......................................................................................................10
Earnings forecast to decline .......................................................................................11
Potential upside to forecasts from US stimulus package ...........................................13
Changes to target prices .......................................................16
Significant recovery prospects in US.........................................................................16
Potential refinancings............................................................18
Cemex refinancing announcement.............................................................................18
Potential implications for Lafarge..............................................................................18
Refinancing concerns also diminishing for Titan ......................................................19
Appendix : Valuations and Risks..........................................20
Buzzi..........................................................................................................................21
Cemex........................................................................................................................24
Ciments Francais........................................................................................................27
CRH...........................................................................................................................30
Eagle Materials ..........................................................................................................33
Holcim .......................................................................................................................36
Italcementi .................................................................................................................38
Lafarge.......................................................................................................................41
Martin Marietta ..........................................................................................................43
Saint-Gobain ..............................................................................................................45
Titan..........................................................................................................................48
Vulcan........................................................................................................................51
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