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Vulcan (VMC) Rises 23.4% in 6 Months Despite Industry Woes
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Vulcan Materials Company’s (VMC - Free Report) shares have risen 23.4% in the past six months compared with the Zacks Building Products - Concrete and Aggregates industry’s 20.6% rise. Vulcan's ability to secure and permit aggregates reserves in strategically located areas, successful acquisitions and strong public construction demand facilitate growth.
However, this Zacks Rank #3 (Hold) company’s growth is challenged by various macroeconomic headwinds like inflationary pressure and supply-chain disruptions. Also, changes in international trade policies, adverse weather conditions, COVID-related risks (material lease concessions) and increased inflation are headwinds.
The company is benefiting from increased public construction demand. Vulcan has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. Public sector construction includes spending by federal, state and local governments for the construction of highways, bridges, airports, dams, roads and other infrastructure construction.
The company witnesses strong tax revenues and increased funding from infrastructure investment owing to higher demand from the highway and other infrastructure market. As of the third quarter of 2022, highway start-ups increased 14% and other infrastructure starts increased 18% on a trailing 12-month basis. The company expects that the current strength in private non-residential construction activity and increased public funding will offset residential market slowdown in 2023.
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, enhancing price growth and operating efficiencies. In the first nine months of 2022, adjusted EBITDA rose 18.5% on a trailing 12-month period basis, despite the higher energy-related cost.
Meanwhile, the acquisitions have helped the company drive its growth. The shipments increased 10% in all product lines during the first nine months of 2022, owing to acquisitions and higher demand. In the first nine months of 2022, the company acquired five aggregates facilities in Texas, four ready-mixed concrete facilities and two idle ready-mixed concrete sites in Virginia; eight aggregates, four asphalt mix and seven ready-mixed concrete operations in California, and an aggregates operation serving limited markets along the Gulf Coast in Honduras for $593.4 million. The return on invested capital as of Sep 30, 2022 was 13.6% on a trailing12-month basis.
For 2022, Vulcan planned capital expenditure between $600 and $650 million, including growth and capacity-adding projects. The company invested $465 million in 2021.
Possible Headwinds
Since 2021, the company has been facing supply chain headwinds and inflationary pressure, particularly in energy and labor. Labor constraints have caused delays and inefficiencies in operations as well as those of customers.
Vulcan operations remain 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 the company’s ability to produce and distribute products and as well as demand as construction work can be hampered by weather.
Key Picks
Some better-ranked stocks in the Zacks Construction sector are United Rentals, Inc. (URI - Free Report) , CRH plc (CRH - Free Report) and Dycom Industries, Inc. (DY - Free Report) .
United Rentals currently sports a Zacks Rank #2. Shares of the company have gained 52.6% in the past six-month period. The long-term earnings growth of the company is 18.2%.
The Zacks Consensus Estimate for URI’s 2023 sales and EPS suggests growth of 11.8% and 14.9%, respectively, from the year-ago period’s estimated levels.
CRH currently flaunts a Zacks Rank #1. Shares of CRH have rallied 30.5% in the past six months.
The Zacks Consensus Estimate for CRH’s 2024 sales and EPS suggests growth of 3.6% and 11%, respectively.
Dycom currently carries a Zacks Rank #2. DY has a trailing four-quarter earnings surprise of 142.93%, on average. Shares of the company have gained 29.4% in the past six-month period.
The Zacks Consensus Estimate for DY’s fiscal 2024 sales and EPS suggests growth of 7.3% and 28.1%, respectively.
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Vulcan (VMC) Rises 23.4% in 6 Months Despite Industry Woes
Vulcan Materials Company’s (VMC - Free Report) shares have risen 23.4% in the past six months compared with the Zacks Building Products - Concrete and Aggregates industry’s 20.6% rise. Vulcan's ability to secure and permit aggregates reserves in strategically located areas, successful acquisitions and strong public construction demand facilitate growth.
However, this Zacks Rank #3 (Hold) company’s growth is challenged by various macroeconomic headwinds like inflationary pressure and supply-chain disruptions. Also, changes in international trade policies, adverse weather conditions, COVID-related risks (material lease concessions) and increased inflation are headwinds.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Focus on Growth
The company is benefiting from increased public construction demand. Vulcan has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. Public sector construction includes spending by federal, state and local governments for the construction of highways, bridges, airports, dams, roads and other infrastructure construction.
The company witnesses strong tax revenues and increased funding from infrastructure investment owing to higher demand from the highway and other infrastructure market. As of the third quarter of 2022, highway start-ups increased 14% and other infrastructure starts increased 18% on a trailing 12-month basis. The company expects that the current strength in private non-residential construction activity and increased public funding will offset residential market slowdown in 2023.
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, enhancing price growth and operating efficiencies. In the first nine months of 2022, adjusted EBITDA rose 18.5% on a trailing 12-month period basis, despite the higher energy-related cost.
Meanwhile, the acquisitions have helped the company drive its growth. The shipments increased 10% in all product lines during the first nine months of 2022, owing to acquisitions and higher demand. In the first nine months of 2022, the company acquired five aggregates facilities in Texas, four ready-mixed concrete facilities and two idle ready-mixed concrete sites in Virginia; eight aggregates, four asphalt mix and seven ready-mixed concrete operations in California, and an aggregates operation serving limited markets along the Gulf Coast in Honduras for $593.4 million. The return on invested capital as of Sep 30, 2022 was 13.6% on a trailing12-month basis.
For 2022, Vulcan planned capital expenditure between $600 and $650 million, including growth and capacity-adding projects. The company invested $465 million in 2021.
Possible Headwinds
Since 2021, the company has been facing supply chain headwinds and inflationary pressure, particularly in energy and labor. Labor constraints have caused delays and inefficiencies in operations as well as those of customers.
Vulcan operations remain 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 the company’s ability to produce and distribute products and as well as demand as construction work can be hampered by weather.
Key Picks
Some better-ranked stocks in the Zacks Construction sector are United Rentals, Inc. (URI - Free Report) , CRH plc (CRH - Free Report) and Dycom Industries, Inc. (DY - Free Report) .
United Rentals currently sports a Zacks Rank #2. Shares of the company have gained 52.6% in the past six-month period. The long-term earnings growth of the company is 18.2%.
The Zacks Consensus Estimate for URI’s 2023 sales and EPS suggests growth of 11.8% and 14.9%, respectively, from the year-ago period’s estimated levels.
CRH currently flaunts a Zacks Rank #1. Shares of CRH have rallied 30.5% in the past six months.
The Zacks Consensus Estimate for CRH’s 2024 sales and EPS suggests growth of 3.6% and 11%, respectively.
Dycom currently carries a Zacks Rank #2. DY has a trailing four-quarter earnings surprise of 142.93%, on average. Shares of the company have gained 29.4% in the past six-month period.
The Zacks Consensus Estimate for DY’s fiscal 2024 sales and EPS suggests growth of 7.3% and 28.1%, respectively.