An uptick in spending on infrastructure and public construction is set to continue driving growth in the Zacks Building Products - Concrete & Aggregates industry. The industry is also poised to benefit from improvements in the residential construction market and advantageous pricing dynamics amid difficult conditions. While uncertainties in the macroeconomic landscape, weather-related issues, and increased labor costs pose challenges, companies like Vulcan Materials Company VMC, Eagle Materials Inc. EXP, and Summit Materials, Inc. SUM have been leveraging these favorable trends to their advantage.
Industry Description
The Zacks Building Products - Concrete & Aggregates industry consists of manufacturers, distributors and sellers of construction materials like aggregates and concrete along with other related items for public infrastructure, residential and non-residential, 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 domestic as well as international markets.
3 Trends Shaping the Future of Concrete & Aggregates Industry
Focus on Reviving Infrastructure: The Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors and Science Act, and the Inflation Reduction Act collectively signify a substantial commitment to bolstering American competitiveness. These three enacted laws are aimed at revitalizing American infrastructure, expediting the shift toward a sustainable economy, and fortifying the domestic semiconductor sector. These bills comprise new investments in almost every infrastructure sector, including transportation, energy, broadband and water. The U.S. administration’s endeavor to pump money for rebuilding the nation's roads, bridges and other infrastructure would give construction companies 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. Moreover, companies are increasingly focusing on reducing controllable costs and maximizing operating efficiency across business lines to generate higher earnings and cash flows. The industry players have also been experiencing a solid pricing environment across their product portfolios, thereby helping to boost margins.
Fluctuation in Input Prices, Weather Woes & Shortage of Skilled Labors: The industry players are struggling with escalating material expenses, the shortage of skilled laborers and rising wage costs. The companies use electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Hence, supply-related woes and significant fluctuations in the prices of these resources affect operating results. Also, businesses are exposed to weather-related risks affecting production schedules and profitability. Excessive rainfall, flooding or severe droughts 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 bump up costs and mar the industry participants’ profits.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Concrete & Aggregates industry is a nine-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #46, 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 impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a higher 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 December 2023, the industry’s earnings estimates for 2024 have increased to $2.47 per share from $2.37.
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 S&P 500 & Sector
The Zacks Building Products - Concrete & Aggregates industry has outperformed the Zacks S&P 500 Composite and the broader Zacks Construction sector over the past year.
Stocks in this industry have collectively gained 71.8% versus the broader sector’s rise of 53.7% over the past year. Meanwhile, the S&P 500 has gained 29.3% in the same period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 20.8X versus the S&P 500’s 20.9X and the sector’s 17.8X.
Over the past five years, the industry has traded as high as 24.8X, as low as 14X and at a median of 19.6X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Concrete & Aggregates Stocks to Buy Now
Below, we have discussed three stocks from the Zacks Concrete & Aggregates universe that have solid growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Summit Materials: Based in Denver, CO, this is a construction material company. Summit Materials has been witnessing solid pricing growth across all lines of business and expects the trend to continue in 2024. The company has also been optimizing its portfolio as it intends to shift toward a more materials-led portfolio. Meanwhile, the company remains optimistic as it believes public markets are poised to experience robust and durable growth driven by well-funded state budgets and infrastructure funding. A solid state Department of Transportation budget flow will aid the company, which has been receiving more contracts associated with highways and related works.
Summit Materials currently sports a Zacks Rank #1. The company’s shares have gained 52.2% in the past year. Earnings estimates for 2024 have increased to $2.42 per share from $2.09 over the past 30 days. This depicts analysts’ optimism over the company’s prospects. Also, earnings for 2024 are expected to rise 53.2%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: SUM
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. Higher demand for wallboard and cement, strong homebuyer demand, increasing infrastructure awards and significant investment in domestic manufacturing facilities are aiding the company’s growth. These tailwinds have been offsetting higher rates. Higher pricing is also adding to the positives. The company remains well-positioned courtesy of its broad geographic footprint, population-growth trends, shortages of residential units, and higher state-level infrastructure spending owing to a multi-year federal highway bill.
Eagle Materials currently carries a Zacks Rank #2. Shares have surged 84.4% in the past year. Also, fiscal 2024 earnings estimates have increased to $14.26 per share from $14.08, over the past 60 days. Earnings for fiscal 2024 are expected to grow 13.8%. It also has a favorable VGM Score of B.
Price and Consensus: EXP
Vulcan Materials Company: 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 — should enhance price performance and operating efficiencies. Vulcan Materials has been generating higher earnings 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. Overall, improving residential and private non-residential construction, large industrial project demand, solid infrastructure investment and favorable pricing dynamics should drive growth.
Vulcan currently carries a Zacks Rank #2. Shares of the company have rallied 63.4% in the past year. Earnings estimates for 2024 have increased to $8.28 per share from $7.92 over the past 30 days. Also, earnings for 2024 are expected to rise 18.3%. It has a three-to-five-year expected EPS growth rate of 16.4%. It also has a favorable VGM Score of B.
Price and Consensus: VMC
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