3 Stocks to Watch From the Promising Concrete & Aggregates Industry
A boost in infrastructural and public construction spending should continue to favor the Zacks Building Products - Concrete & Aggregates industry. An improving residential construction market and favorable pricing dynamics have also been aiding companies in navigating hard times. Indeed, macroeconomic uncertainties, supply-chain disruptions, weather-related woes and higher labor costs are causes of concern. Nonetheless, prominent companies in the industry, like Vulcan Materials Company VMC, Martin Marietta Materials, Inc. MLM and Summit Materials, Inc. SUM, 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 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 recently 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 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. 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 seven-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #107, which places it in the top 43% 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 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 bottom-line growth potential. Since June 2023, the industry’s earnings estimates for 2023 and 2024 have increased 9.6% and 7.3% to $2.06 and $2.34 per share, 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, S&P 500
The Zacks Building Products - Concrete & Aggregates industry has outperformed the broader Zacks Construction sector and the Zacks S&P 500 composite over the past year.
Stocks in this industry have collectively gained 30.6% versus the broader sector’s rise of 30% over the past year. Meanwhile, the S&P 500 has gained 13.5% 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 16.9X versus the S&P 500’s 18.3X and the sector’s 13.8X.
Over the past five years, the industry has traded as high as 24.7X, as low as 13.6X and at a median of 19.1X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Concrete & Aggregates Stocks to Watch
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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, solid infrastructure investment and favorable pricing dynamics should drive growth.
Vulcan currently carries a Zacks Rank #3. The company’s shares have rallied 22.6% over the past year. Earnings estimates for 2023 have increased to $6.82 per share from $6.73 over the past 30 days. The estimated figure indicates 33.5% year-over-year growth. It has a three-to-five-year expected EPS growth rate of 22.9%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: VMC
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. Expanded infrastructure investment, recovering private non-residential and residential markets, heavy industrial projects of scale, large-scale energy projects and domestic manufacturing are expected to support near-term shipment levels. Also, the company has been realigning its overall portfolio for opportunities to maximize value by monetizing or exchanging select assets. Also, proficient acquisitions have been enhancing its reach in new geographies for consistent industry-leading growth.
Martin Marietta currently carries a Zacks Rank #3. Shares of the company have rallied 20.8% in the past year. Earnings estimates for 2023 have increased to $17.75 per share from $17.56 over the past 30 days. Also, earnings for 2023 are expected to rise 47.1%. It has a three-to-five-year expected EPS growth rate of 19%. It also has a favorable VGM Score of B.
Price and Consensus: MLM
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 2023. 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 carries a Zacks Rank #3. The company’s shares have gained 25.2% in the past year. Earnings estimates for 2023 have increased to $1.45 per share from $1.43 over the past 30 days. Also, earnings for 2023 are expected to rise 14.2%. It also has a favorable VGM Score of A.
Price and Consensus: SUM
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Vulcan Materials Company (VMC) : Free Stock Analysis Report
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