Vulcan Materials Company (VMC Quick QuoteVMC - Free Report) has been banking on strategic initiatives, growth in public and private construction end markets as well as buyouts. The announcement of President Joe Biden’s infrastructure plan, which has opened up opportunities for construction-related companies, is also helping the company to drive growth.

This construction-aggregates producer’s shares have gained 13.3% over the past year versus the Zacks Building Products - Concrete and Aggregates industry’s 9.8% growth. Earnings estimates for the current year have increased 2.2% over the past 30 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term.

Yet, supply chain disruptions and cost inflation — particularly for labor and liquid asphalt — are concerning the company. Wet weather conditions and labor shortage are adding to the woes.

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That said, solid prospects in the aggregates business and the acquisition of U.S. Concrete are likely to somewhat offset these challenges for this Zacks Rank #3 (Hold) company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Supporting Growth Factors

Solid End-Market Demand: Increasing public and private construction demand, particularly in the residential market, has been benefiting Vulcan. The company has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. Vulcan-served markets should continue to benefit from public construction demand, primarily led by significantly higher levels of highway funding in key states.

Meanwhile, private consumer demand also strengthened in the past year, especially within residential construction. Privately-funded construction accounted for approximately 58% of total aggregate shipments in 2021. Residential construction continues to be the strongest end market, backed by growth in starts in both single-family and multifamily housing.

Infrastructural Deal: In 2021, the Senate passed the bipartisan infrastructure bill of $550 billion, in addition to previously-approved funds of $450 billion for five years. The plan allocates about $100 billion toward the development of roads, bridges and other major projects. This provides state and local governments with the visibility needed to plan, design and lead transportation projects going forward. This would give construction companies like Vulcan, Summit Materials, Inc. (SUM Quick QuoteSUM - Free Report) , Martin Marietta Materials, Inc. (MLM Quick QuoteMLM - Free Report) , Eagle Materials Inc. (EXP Quick QuoteEXP - Free Report) and others a solid foundation for growth.

Strategic Plans: The company remains focused on creating long-term value by compounding unit margins through four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing and Logistics Innovation — that enhance price growth as well as operating efficiencies. Higher price realizations and its four strategic initiatives should continue to increase unit profitability. For 2022, the company anticipates adjusted EBITDA in the range of $1.720-$1.820 billion. Net earnings are expected within $800-$890 million and aggregates shipment growth is anticipated to be 5-7%.

Recently, the board of directors approved a 7.5% hike in quarterly cash dividend to 40 cents per share. This hike is reflective of its focus on a balanced capital allocation strategy via balance sheet strength and operational excellence. The increase also reflects VMC’s confidence in its future performance and ability to drive shareholder value.

Inorganic Drive: Since 2014, Vulcan has completed more than two dozen value-enhancing acquisitions in some of the fastest-growing markets in the country. On Aug 26, 2021, Vulcan acquired U.S. Concrete, Inc., which expanded the aggregates business in the growing metropolitan areas. Based in Euless, TX, U.S. Concrete has 27 aggregates operations serving California, Texas and the Northeast regions. The buyout of U.S. Concrete provides strategically oriented ready-mixed concrete operations that will expand Vulcan's service capabilities. In 2022, Vulcan expects to spend between $600 million and $650 million on capital expenditures — including growth and capacity-adding projects — versus $465 million invested in 2021.

Aggregates Prospects Look Good: Backed by favorable pricing dynamics and 2021 aggregates unit profitability, Vulcan expects high single-digit growth in Aggregates cash gross profit per ton. It expects total shipment growth of 5-7%, freight-adjusted price increase of 6-8%, and a mid-single-digit increase in freight-adjusted cash cost due to higher energy-related costs (mostly diesel fuel) and continued inflationary pressures.

Industry & Weather Woes to Ail

Vulcan uses a large amount of electricity, diesel fuel, liquid asphalt and other petroleum-based resources that are subject to potential supply constraints and significant price fluctuations. Since 2021, the company has been facing supply woes and inflationary pressures, particularly in energy and labor. Energy inflation was a significant headwind in 2021, which led to a $36-million additional cost. Of these, unit diesel prices were $17 million, and the cost of liquid asphalt (up 35%) and natural gas was approximately $19 million. Labor constraints have also caused delays and inefficiencies in operations. For 2022, the company anticipates these headwinds to persist.

This apart, Vulcan is susceptible to bad weather conditions, including hurricanes, tornadoes and other weather events, as most of its products are used outdoors in the public or private construction industry. Also, the company’s production and distribution facilities are located outdoors. Inclement weather affects both the companies’ ability to produce and distribute products as well as demand, as construction work can be hampered by weather. During the fourth-quarter 2021 earnings call, it noted that the weather was challenging in January and February 2022. Also, COVID spikes affected crews and labor in January.

A Brief Overview of the Other Stocks

Summit Materials: This construction material company is based in Denver, CO. Migration activity amid the pandemic continues to favor rural and exurban markets. Additionally, the strong execution of its Elevate Summit strategy and higher average selling prices for aggregates have been aiding the company to drive growth. VMC remains focused on sustainable improvement via investments in greenfields and end markets that are underpinned by sturdy growth fundamentals.

Summit Materials’ earnings estimates for 2022 indicate year-over-year growth of 37.5%.

Martin Marietta: The company has been benefiting from single-family housing strength, expanded infrastructure investment and heavy industrial projects of scale. Also, the Tiller buyout complements Martin Marietta’s product offerings, thereby broadening its geographic reach and creating a leading aggregates position in the Minneapolis/St. Paul region in Minnesota. Further, the buyout of Southern Crushed Concrete is expected to help the company grow in the area of recycled concrete, which is principally used as a base aggregates product in infrastructure, commercial and residential construction applications.

Martin Marietta’s earnings estimates for 2022 suggest year-over-year growth of 12.8%.

Eagle Materials: This Dallas, TX-based company is benefiting from improved cement, concrete and aggregates sales volume as well as solid contribution from the recently-acquired Kosmos Cement business. Higher pricing is also adding to the positives.

Earnings estimates for fiscal 2022 and 2023 point to 35.3% and 21.8% year-over-year growth, respectively.