For Immediate Release
Chicago, IL – July 14, 2021 – Today, Zacks Equity Research discusses Building Products - Concrete & Aggregates including Vulcan Materials Company VMC, Martin Marietta Materials, Inc. MLM, Eagle Materials Inc. EXP, Summit Materials, Inc. SUM and Cornerstone Building Brands, Inc. CNR.
Link: https://www.zacks.com/commentary/1760868/5-stocks-in-focus-from-promising-concrete-aggregates-industry
Strong demand stemming from U.S. housing market rebound will benefit companies under the Zacks Building Products - Concrete & Aggregates industry. Also, a significant boost in infrastructural and public construction spending should continue to favor the industry.
Indeed, coronavirus-led restrictions, softness in non-residential construction activity, weather-related woes and higher labor cost are eating into the industry players' margins. Nonetheless, prominent companies in the industry like Vulcan Materials, Martin Marietta Materials, Eagle Materials, Summit Materials and Cornerstone Building Brands have been gaining from the positives.
Industry Description
The Zacks Building Products - Concrete & Aggregates industry consists of manufacturers, distributors and sellers of construction materials like aggregates, concrete along with other related items for public infrastructure, residential and nonresidential as well as other end markets.
The materials also include gypsum wallboard, recycled paperboard, concrete blocks, ready-mix concrete, and oil and gas proppants. The industry players are also involved in designing, engineering, manufacturing, marketing, and installation of external building products for commercial, residential, and repair and remodel markets in the domestic as well as international markets.
3 Trends Shaping the Future of Concrete & Aggregates Industry
Focus on Reviving Infrastructure & Housing Sector Rebound: Housing market rebound and focus on enhancing the country's infrastructure by upgrading highways, railroads, bridges, and broadband are expected to be key catalysts for the industry. Solid housing market conditions in the United States backed by rising need for more work-at-home space and record-low mortgage rates are expected to be a major tailwind for the industry participants.
The industry is also poised to benefit from modest growth in public sector construction activity — mainly in transportation projects — and contract work for highways as well as strong pricing. Currently, the Highway Trust Fund ("HTF") is afloat on a one-year continuing resolution passed at September-end.
The U.S. House passed legislation that injects $13.6 billion into HTF, while extending the FAST Act within a year at current funding levels. The FAST — Fixing America's Surface Transportation — Act, which was scheduled to expire on Oct 1, 2020, will now run through Oct 1, 2021.
Recently, President Biden hailed a much-awaited bipartisan agreement on a $973-billion infrastructure plan for more than five years, which includes $579 billion in new spending. Biden administration's endeavor to pump money for rebuilding the nation's roads, bridges, and other infrastructure would give construction companies like Vulcan, Martin Marietta and others a solid foundation for growth.
Acquisitions & Focus on Operating Efficiency: The industry participants follow a well chalked-out acquisition plan to enhance domestic and international portfolios. Meanwhile, companies are increasingly focusing on reducing controllable costs and maximizing operating efficiency across business lines to generate higher earnings as well as cash flow.
Shortage of Skilled Labors, Fluctuation in Input Prices & Weather Woes: The industry players are struggling with shortage of skilled laborers, rising wage costs and escalating material expenses. The companies use electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Hence, supply-related woes and significant fluctuation in the prices of these resources affect operating results.
The businesses are also exposed to weather-related risks that affect production schedules and hence profitability. Excessive rainfall, flooding or severe drought jeopardize shipments and production. The first and fourth quarters are mostly affected by winter. Again, hurricanes in the Atlantic Ocean and Gulf Coast are most active during these quarters. These impediments may continue to bump up costs and mar profits of the industry participants.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Building Products - Concrete & Aggregates industry is a 13-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #45, which places it in the top 18% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since April 2021, the industry's earnings estimates for 2021 and 2022 have been revised 17.2% and 8.9% upward, respectively.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Building Products - Concrete & Aggregates industry has outperformed the broader Zacks Construction sector as well as Zacks S&P 500 composite over the past year.
Stocks in this industry have collectively gained 78.9% versus the broader sector's growth of 51.2%. Meanwhile, the S&P 500 has climbed 38.2% in the same period.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing Building Products - Concrete & Aggregates stocks, the industry is currently trading at 20.9X versus the S&P 500's 22.1X and the sector's 15.1X.
Over the past five years, the industry has traded as high as 26.3X, as low as 12.9X and at a median of 20.4X.
5 Concrete & Aggregates Stocks to Keep a Close Eye On
Below we have discussed five stocks from the industry that have solid growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
Cornerstone Building Brands: This Cary, NC-based company is the manufacturer of exterior building products, mainly in North America. The company is gaining traction, courtesy of higher volume leverage on robust demand for residential products and benefits from cost reduction initiatives.
Although Cornerstone Building Brands has been experiencing supply chain disruptions, strong residential end markets have been helping it navigate through the situation. The company's strong operational execution is positioning Cornerstone Building Brands for long-term profitable growth.
The stock has gained 264.1% over the past year versus the industry's 78.9% rally. This Zacks Rank #1 company's 2021 and 2022 earnings are expected to growth 318.8% and 41.9%, respectively. Meanwhile, its 2021 and 2022 earnings estimates have moved 16.7% and 24.2% higher, respectively, over the past 60 days, reflecting optimism in the company's earnings growth potential.
Eagle Materials: This Dallas, TX-based company produces and supplies heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. Improved cement, concrete and aggregates sales volume as well as solid contribution from the recently-acquired Kosmos Cement Business have been aiding the company. Higher pricing and lower diesel costs are also adding to the positives.
This Zacks Rank #1 company's stock has gained 93.9% in the past year. Its earnings estimates for fiscal 2021 have moved 5.9% up in the past 60 days. Earnings for fiscal 2021 and 2022 are expected to grow 23.9% and 15.2%, respectively.
Martin Marietta Materials: Based in Raleigh, NC, Martin Marietta produces and supplies construction aggregates as well as other heavy building materials — mainly cement — in the United States. Single-family housing strength, expanded infrastructure investment and heavy industrial projects of scale are expected to support near-term shipment levels.
Also, the Tiller buyout on Apr 30, 2021 will be integrated into the company's Central Division. The acquisition will complement Martin Marietta's product offerings, broadening its geographic reach and creating a leading aggregates position in the Minneapolis/St. Paul region.
This Zacks Rank #2 company has seen 3.8% and 3.7% upward estimate revision for 2021 and 2022 earnings, respectively, over the past 60 days. The stock has gained 65.5% in the past year. Earnings for 2021 are expected to witness 9.5% growth and the same for 2022 is likely to grow 11.5%.
Summit Materials: Based in Denver, CO, this is a construction material company. Migration activity amid the pandemic continues to favor the company's rural and exurban markets.
Additionally, strong execution of its Elevate Summit strategy and higher average selling prices for aggregates have been aiding the company to drive growth. It remains focused on sustainable growth with investments in greenfields and end markets that are underpinned by strong growth fundamentals.
The stock has gained 110.7% over the past year. This Zacks Rank #3 company's earnings estimates for 2021 and 2022 have moved 14.2% and 10.3% upward in the past 60 days. Meanwhile, earnings for 2021 and 2022 are expected to grow 59.3% and 16.6%, respectively.
Vulcan Materials: This Birmingham, AL-based company produces and supplies construction aggregates, asphalt mix as well as ready-mixed concrete. The company's focus on four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing and Logistics Innovation — will enhance price performance as well as operating efficiencies.
Vulcan Materials has been generating higher earnings despite tepid revenues on the back of prudent cost-control efforts and increased pricing in aggregates. Its focus on a systematic inorganic strategy for expansion is adding to the positives.
The stock has gained 44.6% over the past year. Although this Zacks Rank #3 company's shares have underperformed the industry over the past year, earnings estimates for 2021 and 2022 have moved 0.6% and 0.5% upward in the past 30 days, depicting analysts' optimism over the stock's earnings prospects. Meanwhile, earnings for 2021 and 2022 are expected to grow 12% and 18.6%, respectively.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Vulcan Materials Company (VMC) : Free Stock Analysis Report
Martin Marietta Materials, Inc. (MLM) : Free Stock Analysis Report
Eagle Materials Inc (EXP) : Free Stock Analysis Report
Summit Materials, Inc. (SUM) : Free Stock Analysis Report
Cornerstone Building Brands, Inc. (CNR) : Free Stock Analysis Report
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