Martin Marietta Materials, Inc. (MLM Quick QuoteMLM - Free Report) has been rallying for the past year on the back of higher shipments, improved pricing strategy and prudent cost management. Also, increased infrastructure funding, strong housing activity and recovering private non-residential markets are helping the company to drive growth.

The construction-aggregates producer’s shares have gained 20.9% over the past year versus the Zacks Building Products - Concrete and Aggregates industry’s 12.9% growth. Earnings estimates for the current year are currently pegged at $13.85 per share, reflecting 12.8% year-over-year growth. The positive trend signifies bullish analyst sentiment, indicating robust fundamentals and the expectation of outperformance in the near term.

However, supply-chain disruptions and cost inflation, particularly for labor and diesel, are concerning the company. Inclement weather and a labor shortage are adding to the woes.

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That said, solid prospects in the Aggregates business and Strategic Operating Analysis and Review (SOAR) 2025 plan 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 Martin Marietta. The company has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline.

Martin Marietta-served markets should continue to benefit from public construction demand, primarily led by significantly higher levels of highway funding in key states. The infrastructure market represented 34% of its 2021 organic shipments. The company expects infrastructure shipments to grow meaningfully in the future, driven by healthy state Department of Transportation (DOT) budgets and an expected extension or replacement for the Fixing America’s Surface Transportation (FAST) Act.

Meanwhile, private consumer demand strengthened in the past year, especially within residential construction.

Aggregate Business a Boon: Martin Marietta has a vast network of aggregate quarries and distribution centers throughout the southern United States, the Bahamas and Canada, as well as distribution centers along the Gulf of Mexico and Atlantic coasts. Higher shipments, pricing improvement and benefits from growth initiatives, owing to strong underlying demand, will boost its sales and profits at the Aggregates business in the forthcoming quarters.

Infrastructural Deal: In 2021, the Senate passed the bipartisan infrastructure bill of $550 billion in addition to the 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.

This will give construction companies like Martin Marietta, Summit Materials, Inc. (SUM Quick QuoteSUM - Free Report) , Vulcan Materials Company (VMC Quick QuoteVMC - Free Report) , Eagle Materials Inc. (EXP Quick QuoteEXP - Free Report) and others a solid foundation for growth.

Long-Term Plans: Martin Marietta has been gaining strength from long-term strategic plans, markedly SOAR 2025 initiatives. It also delivered the most profitable 2021 performance in its history. Notably, 2021 marked 10 years of consecutive growth in consolidated products and services revenues, adjusted gross profit, adjusted EBITDA, and adjusted earnings per share.

Martin Marietta has been focusing on SOAR plans, which include assessing business combinations and arrangements with companies engaged in similar businesses, increasing footprint in core businesses, investing in internal expansion projects in high-growth markets, and pursuing opportunities in existing markets.

Inorganic Drive: The company has been expanding its operations and portfolio via regular acquisitions. On Oct 1, 2021, MLM completed the acquisition of Lehigh Hanson, Inc.’s West Region business, consistent with its SOAR 2025 plan and enhancing its reach in new geographies for persistent industry-leading growth. The acquisition added 17 active aggregates quarries, two cement plants with related distribution terminals and targeted downstream operations to its portfolio.

On Apr 30, 2021, the company acquired Minnesota-based Tiller Corporation, which integrated into the Central Division. The strategic and value-enhancing acquisition will aid Martin Marietta’s high-margin, upstream materials business in one of the largest as well as fastest growing mid-western metropolitan areas.

Industry & Weather Woes

Martin Marietta uses a large amount of electricity, diesel fuel, liquid asphalt and other petroleum-based resources 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 transportation. Labor constraints have also caused delays and inefficiencies in operations.

In fourth-quarter 2021, ready mixed concrete product gross margin declined 70 bps within the Downstream businesses, given higher raw material and diesel costs. Also, asphalt and paving products, as well as services gross margin decreased 650 bps, driven by higher raw material costs. For 2022, the company anticipates these headwinds to persist.

Apart from this, Martin Marietta 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. Inclement weather affects both the company’s ability to produce and distribute products, as well as demand, as construction work can be hampered by weather.

The company’s first and fourth quarters are most adversely affected by winter. Hurricane activity in the Atlantic Ocean and Gulf Coast is most active during the third and fourth quarters.

A Brief Overview of Other Stocks

Summit Materials: The 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%.

Vulcan: The construction aggregates company’s focus on four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing, and Logistics Innovation — will enhance price performance as well as operating efficiencies. Vulcan has been generating higher earnings despite tepid revenues 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.

Vulcan’s earnings estimates for 2022 suggest year-over-year growth of 26.4%.

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

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