Eagle Materials Catalysts Called 'Elusive' By This Street Research Firm

• The share price of Eagle Materials, Inc. (NYSE: EXP) has declined almost 13 percent in the last six months, hitting a low of $67.42 on September 29.
• Garik Shmois of Longbow Research has downgraded the rating from Buy to Neutral.
• The downgrade is based on the weakness in wallboard volumes in the near term, cautious outlook for wallboard pricing, persisting downward pressure in Texas and lack of visibility into the timing of positive catalysts.

Following the strong start to Q3, checks with wallboard distributors indicate that demand was weaker than expected towards the latter half of the quarter, "as nonresidential and multi-family construction trends were called out as patchy during the quarter," the Longbow report said.

Analyst Garik Shmois further explained that given the weak demand, “contacts are finding more one-off discounts and no need to stock up on inventory ahead of announced price increases unless they are incentivized to do so.”

Prices, on the other hand, have remained stable for most of Longbow’s contacts, although larger distributors have reported using incentives and either cutting volume based deals towards the end of 3Q15 or having secured stable pricing through 1Q16.

In addition, the contacts did not expect to take on inventory in Q4, ahead of Eagle Materials’ price increase in January 2016. In fact, Shmois mentioned that the distributors did not expect the “price increases to stick.”

“Consequently, given how industry pricing moved up in the March 2015 quarter, timing issues could make reported prices look worse than they really are as 2016 pricing opportunities get pushed out,” Shmois added.