Market Underestimating Martin Marietta
We’re raising narrow-moat Martin Marietta’s (MLM) fair value estimate to $265 per share from $263. The increase is due to the impact of the time value of money on our model and the impact of U.S. tax reform, partially offset by slightly reduced outlooks for volume and pricing. We trimmed our forecasts to reflect that not all tons lost due to hurricanes in 2017 will be recovered. Nevertheless, we think the market continues to underestimate Martin Marietta’s growth. We forecast EBITDA to more than double through 2022, as continued strength in construction demand continues to drive higher volumes and pricing.
Despite the significant impact on third-quarter performance from hurricanes Harvey and Irma, Martin Marietta generated record EBITDA for 2017 of more than $1 billion. Although this represents just 3% growth from 2016, it’s notable since aggregates shipments actually fell 1% from the prior year due to the weather. In spite of weather holding back volumes, companywide pricing still rose 4.5% over the prior year and gross margin expanded by about 70 basis points.
Looking ahead to 2018, Martin Marietta expects modest growth across all of its end markets, driving guidance of 4% to 6% volume growth and 3% to 5% pricing growth for aggregates. We’re forecasting continued mid-single-digit volume growth through 2022 as construction demand continues to strengthen. In turn, this should help the company push through mid-single-digit pricing increases across its footprint, helping drive gross margins higher through the forecast period.
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