(By Rich Bieglmeier) Texas Industries Inc. (TXI) is expected to report earnings before the market opens on Thursday, September 27, 2012. Management will host the conference at 10 am CT.
Wall Street anticipates that TXI will lose $0.07 for its 1st quarter. iStock expects the supplier of cement, aggregate and consumer product building materials to report earnings that will exceed Wall Street's consensus number. The iEstimate is -0.03 cents – a 4 cents upside surprise.
Beat earnings or not, TXI's stock price tends to be abused by Wall Street following its quarterly checkups. In the days surrounding the earnings announcement, the price has been trimmed, sometimes slashed, 11 of the last 16 quarters. Meanwhile, the company has posted positive eps surprises in seven of the 16 announcements.
On average, Texas Industries' shareholders have watched the stock back up 9.47% in the 11 red earnings driven dips. The handful of occasions TXI rewarded investors; the stock has jumped 14%.
Heading into Thursday's profit news, one analyst of the 10 that covers the building materials company raised their outlook for the current quarter. While "stepping in front" of the earnings announcement with an upward revision is usually a good sign, iStock would prefer to see more unity within the analyst ranks. Another two to three adjustments higher and iStock would be downright bullish on TXI's chances.
With the trend in housing and construction on the upswing, iStock is sort of surprised to see a lone wolf increasing his/her view. Perhaps it's because TXI does most of it business in California and the Lone Star State. California is stuff suffering with 10% plus unemployment, and minus the tech boom in Silicon Valley, much of the rest of the state is struggling. Meanwhile, Texas' economy is predominantly oil and energy driven, and oil has been stagnant for some time –except at the gas pump.
According to the Bureau of Labor and Statistics (BLS), the Producer Price Index readings for cement making components have steadily climbed throughout 2012; although, a few settled back in August. Another possible dent to margins could be diesel prices as they rose approximately 9% during from the start of June through the end of August. Since TXI doesn't hedge, the bottom line is likely to feel the increases.
So, the race is on, can the uptick in construction outpace higher costs and expenses?
As you can understand, picking the right side of this trade could be difficult. Options investors might consider employing a straddle strategy. Based on the current call and put prices, an in the money straddle with an October 40 call and October 45 put, or out of the money with a 45 call and 40 put, roughly have the same breakeven points. Since the out of the money requires a smaller investment, iStock would roll with the 45 call and 40 put.
After earnings, Texas Industries Inc. (TXI) will have to trade above $47.20ish or below $37.75ish for the trade to be profitable.