USG Corporation (NYSE:USG) is engaged in the manufacture and distribution of building materials, production of a range of products for use in new residential, new nonresidential, and repair and remodel construction, as well as products used in certain industrial processes through its subsidiaries. The company's operations are organized into three primary operating segments: North American Gypsum, Worldwide Ceilings and Building Products Distribution. North American Gypsum manufactures gypsum and related products, while Worldwide Ceilings manufactures ceiling tiles and ceiling grids. The Building Products Distribution consists of L&W Supply, a building products distribution business in the United States.
USG has been burdened with asbestos-related liability for years but the issues are so well known that any risks in that regard have long since been priced into the current share value. That being said, some analysts are touting USG as a "valuation" stock and based on the company's recent quarterly report, that assessment may not be far off the mark. In February, USG announced that annual revenue grew to $1.17 billion from $927 million as operating profits at the company's gypsum business nearly doubled to $120 million. For the full year, the company posted net income of $312 million, or $7.26 per share, up from $122 million, or $2.82 per share, in 2003.
Of course, the company's success is based in large part on the growth in the housing industry and if the demand in that segment begins to wane, USG's bottom line will certainly be affected. In addition, there is ongoing asbestos litigation that will eventually result in a capital outflow from the company's contingency fund. The question is when these events will occur and if you believe, like many investors, that they are in the distant future, you should consider a bullish position in USG. As you might expect, due-diligence is highly recommended before initiating this trade.
Sell Put APR 27.50 USG-PY
Current Bid = $0.50 Open Interest = 638
Potential Profit (5 contracts) = $250
Initial Margin (5 contracts) = $3,930
Return on Investment (max) = 5.9%
Cost Basis in Stock = $27.00
Days to Expiration = 33