Freedom Broker initiates on small-cap limestone producer USLM with ‘buy’

Freedom Broker has initiated coverage of limestone producer United States Lime & Minerals (USLM). It opened with a “buy” recommendation, having valued the firm almost 11% higher than the current stock price. USLM has no public peers, and its strong financial position allows it to distribute all free cash flow to shareholders, Freedom Broker pointed out.

Freedom Broker has begun covering USLM with a “buy” call at a target price of $103 per share, nearly 11% above the current market price. Yesterday, April 2, shares closed just below $93 per share, gaining almost 2% for the day. However, in early trading today, April 3, the stock sold off more than 5% amid a broader downward move following Trump’s announcement of “reciprocal tariffs.”

Freedom Broker’s recommendation is based on the company’s strong market position and stable financial situation, according to the note seen by Oninvest.

USLM is one of the largest suppliers of quicklime in the U.S., with a market share of approximately 25%, and is the only publicly traded company in this segment, Freedom Broker points out. The company operates multiple quarries and owns processing kilns. Its products are used in road and building construction, municipal water treatment facilities, and agriculture, as stated on the company’s website.

USLM revenue has grown at an average annual rate of 9% over the last decade. The company has no debt and funds its operations with internal resources, Freedom Broker adds. This financial stability allows it to distribute all free cash flow to shareholders. “It means it has the potential to increase its payout ratio to 50-60%, boosting its dividend yield,” Freedom Broker wrote.

In its fourth quarter earnings, USLM announced a 20% increase in the quarterly dividend to $0.06 per share. The company also reported nearly 22% year-over-year revenue growth to $80.1 million alongside a nearly 60% rise in net income to $27.0 million.

The absence of debt makes USLM resilient to Fed rate decisions, Freedom Broker points out. Recall that in March, the FOMC left rates unchanged for the second consecutive meeting due to concerns over slowing growth and rising inflation.

Freedom Broker also listed risks for investors. The primary one is the company’s limited growth potential. USLM has traditionally expanded through mergers and acquisitions, but the management believes there are currently no foreseeable opportunities for such deals.

Year to date, USLM shares have lost nearly 30%, but over the last 12 months, they are up almost 58%. According to MarketWatch, besides Freedom Broker, only one other outfit covers the company. Their rating is also a “buy,” with a target price of $105 per share, implying upside of 13% versus the last closing price.