The Zacks Building Products - Concrete & Aggregates industry consists of manufacturers, distributors and sellers of construction materials like aggregates, concrete, and other such items. The materials also include gypsum wallboard, recycled paperboard, concrete blocks, ready-mix concrete and oil and gas proppants.
Prominent companies in this industry are Martin Marietta Materials, Inc. (MLM) and Vulcan Materials Company (VMC).
Let’s take a look at the industry’s three major themes:
- The industry is poised to benefit from growth in public sector construction activity, mainly in large transportation projects and contract work for highways, as well as strong pricing. Total U.S. public construction spending rose 8% through the first four months of 2020 when compared to the same period last year. Notable gains in safety products, power, water supply and commercial have been the bright spot. Meanwhile, the housing market has regained momentum post the COVID-19-induced disruptions, thanks to declining mortgage rates. The industry players are expected to reap the benefits of solid household formation, attributable to declining mortgage/interest rates and low inventory levels. The housing market rebound and Trump’s impetus to enhance the country’s infrastructure by upgrading highways, railroads, bridges and broadband are expected to be key catalysts for the industry.
- 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 and cash flow.
- However, the industry players are plagued with shortage of skilled laborers, rising wage costs and increasing material expenses. The companies use electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Hence, supply-related woes and significant fluctuation in 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 the most active during the third and fourth quarters. These impediments may continue to bump up costs and mar profits of industry participants.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Building Products - Concrete & Aggregates industry is a 16-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #41, which places it in the top 16% 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.
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 Lags Sector & S&P 500
The Zacks Building Products - Concrete & Aggregates industry has lagged the broader Zacks Construction sector as well as the Zacks S&P 500 composite over the past year.
Stocks in this industry have collectively lost 16.5% versus the broader sector’s growth of 3.7%. Meanwhile, the S&P 500 has climbed 5.1%.
One-Year Price Performance
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 25.5X versus the S&P 500’s 22.1X and the sector’s 18.9X.
Over the past five years, the industry has traded as high as 32X, as low as 12.9X and at the median of 20.4X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Indeed, weather-related woes, higher labor, freight and material costs are eating into margins of industry players. Nonetheless, a significant boost in infrastructural and construction spending should continue to favor the industry.
Below we present a stock from the Zacks Building Products - Concrete & Aggregates space that sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
U.S. Concrete, Inc. (USCR): Based in Euless, TX, this company produces and sells ready-mixed concrete, aggregates, and concrete-related products and services to the construction industry in the United States, the U.S. Virgin Islands, and Canada. Its 2020 earnings estimates have moved 262.5% up in the past 60 days, reflecting optimism in the company’s earnings growth potential.
Price and Consensus: USCR
Investors can also keep an eye on the following Zacks Rank #3 (Hold) stocks with impressive prospects.
Forterra, Inc. (FRTA): Headquartered in Irving, TX-based Forterra is a manufacturer of concrete and clay building products. It has an expected earnings growth rate of 866.7% for 2020.
Price and Consensus: FRTA
Eagle Materials Inc. (EXP): 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. Its 2020 earnings estimates have moved 6.9% up in the past 30 days.
Price and Consensus: EXP
Vulcan Materials Company (VMC): This Birmingham, AL-based company produces and supplies construction aggregates, asphalt mix as well as ready-mixed concrete. The company has a three-five year expected earnings growth rate of 9%. Its 2020 earnings estimates have moved 1.6% up in the past 30 days.
Price and Consensus: VMC
Below is one stock with a Zacks Rank #4 (Sell) that we recommend investors to stay away from for the time being.
Cornerstone Building Brands, Inc. (CNR): Cary, NC-based company designs, engineers, manufactures, and markets external building products for the commercial, residential, and repair and remodel construction industries in North America. Its earnings for 2020 are expected to decline 464.1%.
Price and Consensus: CNR
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Vulcan Materials Company (VMC) : Free Stock Analysis Report
U S Concrete, Inc. (USCR) : Free Stock Analysis Report
Martin Marietta Materials, Inc. (MLM) : Free Stock Analysis Report
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Eagle Materials Inc (EXP) : Free Stock Analysis Report
Cornerstone Building Brands, Inc. (CNR) : Free Stock Analysis Report
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