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Yamil Berard
Yamil Berard
Articles (192) 

Buffett Maintains Ownership of Building Materials Company

The iconic investor holds almost 31% of USG Corp after it rejected a bid by a German builder to buy its stock at $42 a share

March 26, 2018 | About:

The board of directors for USG Corp. (NYSE:USG) unanimously rejected an unsolicited acquisition bid from German builder Knauf AG, a major holding of guru investor Warren Buffett. 

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. (NASDAQ:AAPL) and Wells Fargo & Co. (NYSE:WFC). In Monday trading, the stocks of both companies were up by over 2%. Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) 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%.

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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.

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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.


Rating: 4.7/5 (6 votes)

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Comments

Ryan Harding
Ryan Harding - 6 months ago    Report SPAM

Hi Yamil. I don't believe any new shares were purchased as of their filing last week (13D/A I think was the filing type). Their filing re-iterated the exact figures I had from the 31 Dec 2017 13-F filings for Berkshire plus those for New England Asset Management (Other Owner 01 02 in Column 7 denotes Berkshire's holdings that aren't shown in Berkshire's own 13-F) - the only new part was in the Notes to 13-D/A, disclosing the offer by Knauf and Berkshire's offer of an option.

This was something I had missed until recently when it was pointed out to me, and is rarely included in analysis of Berkshire's portfolio, but it stacks up against the individual holdings disclosed in the Annual Report (net of holdings in Berkshire's pension funds) and seems to be absolutely correct.

I guess the reason for the discrepancy is that 13-F reporting is more about monitoring significant controlling parties from a regulatory position, and not about portfolio tracking. You will probably still see the same holdings in Berkshire's own 13-F when it comes out in May, as the quarter ended so soon after the recent filing.

Ryan Harding
Ryan Harding - 6 months ago    Report SPAM

My best estimate of the portfolio holdings attributable to Berkshire Shareholders is on the COMBINED HOLDINGS tab of a Google Sheet I maintain to track the Look-Through holdings and earnings of Berkshire. (No warranty to reliability of information in that sheet). Some of these figures are less than in the 13-F as I've made adjustments based on the Annual Report where holdings attributable to employee pensions were excluded.

Yamil Berard
Yamil Berard - 6 months ago    Report SPAM

Hi Ryan, Thank you for pointing this out to me. I will look at the annual report and make adjustments. Good to check for future listings that pop us for us.

batbeer2
Batbeer2 premium member - 6 months ago

Hi Yamil,

Thanks for sharing. Here's three thoughts:

1) You say Buffett started buying in 2013. That is not the case. Off the top of my head Berkshire was buying USG back in 2008/2009. They bought convertible debt (those became shares in 2014). The conversion of the debt to common shares is probably what you are looking at in the gurufocus ownership chart. My guess is that the avarage price Berkshire paid for those shares is around $12. Someone else can do the math though. In any case, Berkshire owned a decent chunk of USG long before 2013.

2) Just for fun..... Someone on this forum once said:

"There is a catalyst for USG. You have the posibilty of Knauff making a bid."

But that was in 2009 with USG regularly trading below $15. [www.gurufocus.com] https://www.gurufocus.com/news/70378/why-usg-is-worth-at-least-3-billion-dollars

3) FWIW I'm now predicting that Berkshire will acquire USG. Perhaps they'll acquire Knauf too. Once Berkshire exceeds the "threshold" of 25%, Berkshire invariably ends up owning the entire company. Don´t hold your breath though. Sometimes it takes 9 years before the market sees things my way. Much like a broken clock, I am somtimes right :-)

Please leave your comment:


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