The U.S. construction market has remained stable for quite some time, thanks to prevailing macroeconomic headwinds and energy market woes. Also, Fed’s intention to recover the economy and improve inflation with frequent interest rate hikes hinders buyers from indulging in home buying activities.
The non-residential construction and repair and remodeling activities are strengthening. Also, solid growth in communications, transmission, power and other infrastructural end markets is gaining traction. Companies like Gibraltar Industries, Inc. ( ROCK Quick Quote ROCK - Free Report) , Construction Partners, Inc. ( ROAD Quick Quote ROAD - Free Report) , Installed Building Products, Inc. ( IBP Quick Quote IBP - Free Report) and Janus International Group, Inc. ( JBI Quick Quote JBI - Free Report) , each carrying a Zacks Rank #2 (Buy), are set to benefit from operational excellence, geographic and product diversification strategies, accretive buyouts and higher government spending in infrastructure. Based on various parameters, let’s check whether Gibraltar or Construction Partners is a more profitable stock. It is to be noted that both companies are almost neck to neck in terms of market cap. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. What Defines the Stocks
Buffalo, NY-based Gibraltar manufactures and distributes products to the industrial and buildings market. The company has been benefiting from the three-pillar value creation strategy and robust Residential Products business. Also, the U.S. administration’s endeavor to boost renewable energy and infrastructure of the country and operational excellence are added positives. Its second quarter order backlog was up 5% because of robust end-market demand and new order activity across the business.
Headquartered in Dothan, AL, Construction Partners is a civil infrastructure company. Organic and inorganic growth opportunities in the attractive southeastern U.S. road construction/repair market are expected to drive the company’s growth. Overall, its competitive advantages — comprising vertically integrated operations, scale, solid hot mix asphalt production, a robust backlog, and strong growth via organic and acquisition strategies — are likely to aid the company in the near term. However, both companies are grappling with supply chain headwinds, inflationary pressure and project delays. Also, the tight labor market and elevated energy costs are potential headwinds. Customer Base & Market Cap
ROCK serves customers primarily in North America, including renewable energy (solar) developers, home improvement retailers, wholesalers, distributors, institutional and commercial growers of food and plants and contractors. At 2021-end, a home improvement retailer within the Residential segment contributed 13% to its total net sales. No other customer in any segment accounted for more than 10% of its total net sales.
ROAD provides construction products and services to public and private infrastructure projects, emphasizing on highways, roads, bridges, airports and commercial and residential sites in the southeastern United States. Its largest customers are state DOTs, and none of these contributed more than 10% to total revenues for the fiscal 2021-end. At present, the market capitalization of Gibraltar is $1.25 billion, while that of Construction Partners stands at $1.55 billion. Regarding customer spectrum, Gibraltar has the edge over Construction Partners. ROCK serves a broad range of government and private sector entities than ROAD but has a slightly lower market cap. Stock Performance
In the past six months, Construction Partners has gained 12.6%, while Gibraltar fell 18.2%. The Zacks
Building Products - Miscellaneous industry, the Zacks Construction sector and S&P 500 declined 7.7%, 8.2% and 7.1%, respectively, during the same period. ROAD here is a clear winner between the two. Image Source: Zacks Investment Research Earnings Growth Rate & Surprises
The ability to consistently boost profit levels while defying industry woes is a defining characteristic of the best companies. Analysts expect Construction Partners’ earnings to grow 7.7% for the current year and 98.8% in fiscal 2023. Comparatively, Gibraltar’s earnings are expected to grow 19.4% in the current year and 9% in 2023. Hence, Gibraltar’s higher growth rate for the current year implies a greater potential for capital appreciation.
Considering a more comprehensive earnings history, Gibraltar surpassed estimates in two of the last four quarters, with an average of negative 2%. That said, Construction Partners topped analysts’ expectations in just one of the last four quarters, with an average surprise of negative 75.6%. Valuation
The two stocks under consideration, Gibraltar and Construction Partners, have a trailing 12-month price-to-earnings (P/E) ratio of 13.18 and 95.47, respectively. The industry has a trailing 12-month P/E ratio — which is the best multiple for valuing building products stocks — of 13.81, below the S&P 500 average of 18.02. Construction Partners is highly overvalued than Gibraltar, industry and S&P 500.
Profitability and Returns
Return on Capital (ROC) of Gibraltar and Construction Partners is 11.3% and 2.3%, respectively. The industry’s ROC stands at 10.2%. This signifies that Gibraltar generates a higher return on investment than Construction Partners and the industry.
Return on Equity (ROE) in the trailing 12 months for Gibraltar is 12.1%. Construction Partners’ trailing 12-month ROE is 3.9%. Gibraltar handily outpaced Construction Partners but underperformed the industry, which generated an ROE of 22.4% in the said period. Bottom Line
Gibraltar appears to be a comparatively better investment option than Construction Partners in terms of all the above statistics, other than the market capitalization and stock performance.
A Brief Overview of the Other Two Stocks
Installed Building also carries a Zacks Rank #2 (Buy). The company is a leading installer of insulation and complementary building products. It primarily banks on a robust pipeline of acquisition opportunities across multiple geographies, products and end markets.
Installed Building’s earnings for 2022 are expected to rise 50.4%. Headquartered in Temple, GA, Janus manufactures and supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog level, impressive project pipeline, productivity improvements and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share position in self-storage doors and related design and installation services. Janus’ earnings for 2022 are expected to rise 11.3%.