NYSE : US$13.32
BUY  Target: US$15.00 


Headwaters Incorporated is a provider of innovative construction materials for use in the light building products and heavy construction industries

Sustainability — Energy & Power Technologies PUSHING FOR OUTPERFORMANCE; MAINTAIN BUY, $15 TARGET
Investment recommendation We expect improving construction market trends to help support P&L momentum. With a host of new products entering the builders channel in 2014, we look for improved operating leverage and cash generation.   Investment highlights  Progress on profitability and outperformance vs. the peer group is impressive, as light and heavy construction markets continue to improve off the sharp multi-year bottom. Management’s “midcycle” earnings power model ($195M EBITDA) appears doable to us.
 Management stays picky, as $80M of accretive M+A is likely FTM, while underlying organic benefits (distribution penetration, ash pricing) continue to build. That said, Q2/14 weather was tough, driving us to tweak our model slightly, even with a couple important weeks of selling left. Full analyst day details below.
 Given the weather, we adjust our Q2 rev/EPS estimates while keeping the full year intact at $791M/$0.60.  Valuation We apply a multiple of 10.0x EV/FY2015 EBITDA (F2015E EBITDA $153M) to reach our $15.00 target.
Risks Volatility in residential construction markets, uncertain flyash regulations/demand and a highly leveraged balance sheet


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