The board of directors for USG Corp. (USG, Financial) unanimously rejected an unsolicited acquisition bid from German builder Knauf AG, a major holding of guru investor Warren Buffett.Ă‚
In a press release, USG officials wrote the bid of $42 per share “substantially undervalued” USG and was not in the best interest of its shareholders.
Buffett holds an ownership interest of almost 31% in the manufacturer of building materials. He became the company’s largest shareholder several years ago and, it appears, that’s not about to change.
USG stock rose by more than 6% to over $40 a share in Monday trading.
USG represents the guru’s eighth-largest holding, representing 2.44% of a portfolio valued at over $101 billion. Buffett’s top two holdings are Apple Inc. (AAPL, Financial) and Wells Fargo & Co. (WFC, Financial). In Monday trading, the stocks of both companies were up by over 2%. Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial) was also up 2%.
Stalwart performer
Buffett holds 43,387,980 shares of the maker of wallboards, interior wall and ceiling products that has been in business for over a century. In total, Buffett’s holding has a value of over $1.5 billion, according to GuruFocus.
Since Buffett initiated a position in USG, GuruFocus shows it has produced an estimated gain of 35%.
The Chicago-based company has become a favorite of Buffett’s for its ability to survive periods of feast and famine. Also known as United States Gypsum Corp., USG survived the 2008 recession, which took a major hit on the U.S. housing market. USG tends to benefit most in times of economic growth when housing starts hit their stride. USG was among the companies that Buffett assisted with financing during those troubling years.
Since then, the company has been identified as a value for investors, commanding a strong brand name. In the last five years, its stock has risen by 50%. Year to date, it is up 4%.
Portfolio purchase
Buffett began his USG shopping spree in the fourth quarter of 2013, snatching up 34.8 million shares of the company for an average price of $27.05 per share. On Friday, he executed the purchase of new shares for an average price of $33.51.
In its income statement, USG reported revenue of $3.2 billion in 2017, compared to $3 billion in the prior year. Revenues hit a peak at $5.8 billion in 2006, falling to $2.8 billion in 2010. Cash flow from operations stood at $382 million as of December 2017.
The company posted revenue per share of $21.84 as of December 2017, compared to $20.43 per share in the prior year. It has seen a revenue growth per share of 6.90% over the last 12 months. Its revenue growth per share has declined by 8.2% over the last five years.
What draws investors to the stock is its strong EBITDA per share. In 2017, EBITDA per share was $3.65 compared to $3.75 a share the prior year. EBITDA per share has been in an upward movement since 2008, when it posted a loss of $3.18 a share.
The company’s growth and operating margins have been on the rise over the last several years. In gross margins, the company reported 20.76% in 2017 compared to 23.37% in the prior year.
It has seen its number of employees drop to 6,800 in 2017 from over 14,000 in 2002.
The company has been able to dwindle its long-term debt down to $1 billion from a high of $2.3 billion in 2010.
