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Cemex is looking mighty tasty right now



March 08, 2008 – Comments (0) | RELATED TICKERS: CX

Barron's published a bullish piece on Cemex this week. It contains some good information, but most of it is just a recap of recent events for anyone who follows the company.  The interesting points include:

- The reduction in its interest expense for the Rinker acquisition because interest rates are 2% lower today than what Cemex had anticipated they would be at the time the deal was announced. This change in rates will supposedly increase Cemex's cash flow by $300 million!

- The greater than expected synergies that Cemex is seeing from the Rinker acquisition.  The company stated that it expects to wring $400 million in savings from synergies as it integrates the recently acquired Rinker. Cemex believes that it will realize $200 million in savings in 2008. This is very positive news because when the acquisition was initially announced CX stated that it expected to realize only $130 million in synergies in the first three years after the deal is completed. So Cemex is saying that it will realize over 50% greater cost savings in the first year than it initially had expected to realize over three years!

- Increased spending on infrastructure in Mexico. Mexico announced that it plans to spend $7.5 billion on public works projects in 2008, a 34% increase over 2007. Approximately half of this expenditure will go towards projects that require cement, such as airports, water treatment facilities, and ports. This is important because Mexico is a significant market for Cemex, representing 18% of its sales.

- An impressive list of funds currently own Cemex, including Longleaf which owns an 8% stake and Muhlenkamp which owns 4.5%.

Cemex is currently trading at approximately 8 times its estimated 2009 earnings. A return to a more normal P/E ratio of 12 to 14 for the company would cause its stock to rise to between $38 and $44, which would represent a 50% to 75% gain from today's price.

Cemex's stock is has dropped over 30% since hitting its 52 week high back in June. I am extremely pessimistic about the U.S. economy and perhaps the negative impact that it might have upon Mexico, but this company is extremely well run and it looks like an excellent buy to me at today's prices.

Long CX

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