USG Write Up

I recently completed a discount cash flow analysis of USG. Many of you may know that Berkshire Hathaway owns 19% of USG, which was the catalyst that triggered by initial interest (and purchase of USG last year).

At the time I did a quick DCF and determined that USG was almost 20% undervalued. The recent release of USG's 10K provided a good opportunity to review my DCF and revise my write up.

The stock was also the subject of a presentation by Whitney Tilson at last fall's Value Investor Conference in New York. Tilson's enthusiasm surpasses mine, primarily due to the fact that my valuation model prices in a large decline in the gypsum wallboard market due to a decline in housing construction that Tilson's USG model does not.

That's right, USG's primary product is Sheetrock, the top wallboard brand in the world and the biggest use of that product (45% of revenue) goes into new home construction and yes, new home construction is going to be weak. However the fear this decline inspires in investors, coupled with USG's messy financial statements (due to a recent asbestos and bankruptcy settlement) have lead to a cheap price for the stock, so cheap that I am willing to tough out a housing decline.

Take a look at my write up and model and let me know your thoughts, USG is currently my largest stock holding and I'm interested in feedback.

USG Write Up

USG Valuation Model

Timothy Burger
timothyburger(at) gmail.com