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Infrastructure stocks aren't buying Trump's infrastructure talk

Nicole Sinclair
Markets Correspondent

Trump’s “infrastructure week” builds on his call for spending $1 trillion in US infrastructure over 10 years. Specifically, Trump’s plan aims for $200 billion in federal spending that would trigger $800 billion in private financing through public-private partnerships.

While the need for increased infrastructure investment has been acknowledged by Democrats and Republicans, disagreements on funding suggest a more uncertain road to passage.

Investors in companies that would benefit from an infrastructure boom don’t appear convinced that a wave of spending is coming any time soon. Martin Marietta (MLM), Vulcan Materials (VMC) and United Rentals (URI) have all underperformed the market, as shown in the year-to-date chart below.

Management at these companies aren’t factoring in a boost in federal spending in their forecasts. The last time these companies updated their investors was just over a month ago.

Martin Marietta, a leading supplier of aggregates used for heavy construction, reiterated in its first-quarter report on May 2 that it is not banking on legislation in its estimates.

“The 2017 guidance we provided in February and reaffirm today does not reflect any benefits that may be gained from potential legislation, increasing federal infrastructure investment,” Martin Marietta CEO Howard Nye said.

Vulcan Materials, the biggest producer of construction aggregates in the US, also would benefit from more federal infrastructure funding. But on the company’s earnings conference call on May 10, CEO Thomas Hill pointed to state-level funding, such as California’s Senate Bill 1, as the key driver for the company. He added he was optimistic about something happening eventually on the national level but remained focused on state efforts in the near and medium term for Vulcan. It’s worth noting transportation Department Secretary Elaine Chao served as a board member before stepping down this year.

Construction crews work on a section of Interstate 20 West that buckled in Decatur, Ga., Monday, April 17, 2017. (AP Photo/David Goldman)

“This will continue to happen across other Vulcan states and other states throughout the country, but it’s also going to happen at some point in time on a national level,” Hill said on the earnings call.

United Rentals, which is the largest equipment rental company in the world, also stands to benefit from a ramp-up in infrastructure, but it too is not banking on any federal approval.

“As far as infrastructure, the infrastructure is being talked about on the political front, we’re not baking that into our number, that would be added on to as we go forward,” CEO Michael Kneeland said at the Wells Fargo Industrial Conference on May 10. “But I would tell you that the employment numbers, the consumer index, trucking improvements that we’re seeing, the tonnage weight, all point to the economy doing fairly well.”

The needs are significant

State and local governments currently provide 75% of the $400 million in annual infrastructure dollars. But support from the federal government is necessary to address the nation’s needs.

The American Society of Civil Engineers estimated that a build-out for everything from the country’s roads and bridges to schools and transportation systems needs $4.59 trillion in investment by 2025. The group gave America’s infrastructure a D+ on a 2017 report card.

As noted in the National Association of Manufacturers’ (NAM) “Building to Win” infrastructure plan, “Without immediate action on the infrastructure crisis, the United States will lose more than 2.5 million jobs by 2025 and more than 5.8 million by 2040.”

Meanwhile, past federal action—including Obama’s 2009 Recovery and Reinvestment Act (ARRA) and 2015 Fixing America’s Surface Transportation (FAST) Act—haven’t been enough, according to Stifel analyst Stanley Elliott.

Trump’s tax-credit approach has been critiqued by the left as a “privatization scam” that would be better served with public money. Meanwhile, passage is threatened by his own party, with health care  and tax reform seen as higher agenda priorities.

Considering all these needs and hurdles, it’s no wonder why stocks in this sector haven’t seen better performance.

Nicole Sinclair is markets correspondent at Yahoo Finance.

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