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MARCH 18, 2002

INSIDE WALL STREET

Lafarge Pours It on

 
By Gene G. Marcial
Gene Marcial

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Shareholders of Lafarge North America (LAF ) are laughing all the way to the bank. No. 1 in cement and ready-mix concrete, Lafarge shares started advancing in late 2000, moving up from 16 to hit 32 by the end of 2001--despite the recession. And by Mar. 6, 2002, the stock had vaulted to 43, a new high. But because of the fast runup, some analysts have downgraded it to a hold. Lafarge NA is 54% owned by French parent Lafarge, France's leader in building materials, also listed on the Big Board--but whose stock has been flat since late 2000, at around 22.

The bulls on Lafarge NA argue that its advance is a big breakthrough. "The stock always peaks when it hits a price-earnings ratio of 11, but it has now overcome that barrier--currently trading at 13 times--and it's likely to push higher," says an investment adviser, who publishes a widely read investment newsletter and rates Lafarge a buy. This pro thinks analysts underestimate Lafarge. He notes that the consensus of analysts' earnings estimates in 2001's fourth quarter was 86 cents a share; Lafarge posted $1.12 instead. They also missed the 2001 profits, which came out at $3.21. This suggests that "analysts don't have a handle on Lafarge's earnings power," he says, as construction spending boomed despite the recession.

John Kasprzak of BB&T Capital Markets, who is a bull on Lafarge, figures it will earn $3.55 a share in 2002, and $3.92 in 2003. Lafarge's peers, such as Texas Industries and Florida Rock Industries, trade at 19 to 22 times 2001 profits. At 16 times 2002 estimate, the stock would be 56.

There is a wild card: Industry rumors, according to some pros, say that France's Lafarge may buy the rest of the Lafarge shares that it doesn't own. Lafarge declined comment.


By Gene G. Marcial
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