USG keeps rising; analyst sees buying opportunity

NEW YORK - Shares of USG Corp. continued to climb Monday as an analyst said the gypsum wallboard maker's finances are improving, restructuring efforts are helping and a recent sell-off in shares has created a buying opportunity.

USG shares spiked 25 percent to close at $7.07 Friday, after the building supplies maker said it will raise $400 million by selling convertible notes, mostly to Warren Buffett's Berkshire Hathaway Inc., USG's largest shareholder. Shares rose another 53 cents, or 7.5 percent, to $7.60 Monday.

But the stock is still far from its 52-week high of $40.25, as the housing market's continued decline has slashed demand for its construction supplies. The company's Oct. 28 warning that it might default on terms of a lending agreement sent shares on a downward spiral — they hit a five-year low of $5.50 last week.

JP Morgan analyst Michael Rehaut said in a note to clients Monday that the Chicago-based company's debt sale will reduce its reliance on short-term financing.

He said the move "represents an important step in improving its negotiating position with its banks to amend its revolver, which in turn has been an overdone area of concern, in our view, with investors, as the stock has fallen roughly 63 percent since announcing third-quarter results on Oct. 28."

The company also recently launched a restructuring effort to save about $125 million, and said it would cut about 20 percent of its salaried work force. The reduction of 1 billion square feet of wallboard capacity, announced earlier this month, plus the closure of other facilities also is positive, Rehaut said.

While Rehaut thinks the stock's recent pullback presents a buying opportunity for investors, he maintained a "Neutral' rating on shares, saying there is little prospect of margin improvement next year.

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