Jefferies said Hold-rated USG Corporation (NYSE: USG) could buyback shares to maintain the low-end of its leverage target and enter in to a bolt-on acquisition to expand in West Coast.

"While FCF will be depressed in 2017 from the $75 mil spend for advanced manufacturing, including the proceeds of the L&W sale, we believe USG has $300-400 mil dry powder to buy back stock to maintain the low-end of its leverage target (1.5-2x)," analyst Philip Ng wrote in a note.

Ng, who believes a transformative acquisition as unlikely, cut the price target to $29 from $33 based on based on 2017 estimated EBITDA of $689 million and a 7.0x multiple.

Meanwhile, the analyst noted that the off-take agreement with ABC is "more manageable than feared."

Though the stock is expected to be range bound given the uncertainty on volumes and pricing in wallboard, the analyst sees strong balance sheet will enable management to start returning cash back to shareholders in 2017.

At time of writing, shares of USG rose 1.87 percent to $26.68.