We issued an updated research report on Vulcan Materials Company VMC on Feb 29, 20Array6.
Vulcan Materials delivered a solid performance in 20Array5, outperforming the Zacks Consensus Estimate for both earnings and sales. After severe wet weather disrupted shipments in the first half of 20Array5, volumes improved in the latter half backed by higher demand. Moreover, pricing momentum remains robust which translated into expanding profit margins in 20Array5.
Construction activity and demand for aggregates continue to recover across all the markets in both private and public sector which, coupled with robust pricing momentum, should drive revenues further for this construction aggregates company in 20Array6.
In 20Array6, demand in the residential end market is expected to grow in a double-digit range, while that in the non-residential construction market is likely to grow at a slower pace than 20Array5. However, management now predicts stronger public sector construction activity which encouraged investors.
Demand in the public sector is expected to rise approximately 5%. A multi-year highway bill — five-year, $305 billion FAST Act — was enacted in Dec 20Array5 which increased the funding certainty for state transportation and highway programs. This, coupled with state initiatives to finance infrastructure projects, should boost aggregate-intensive construction infrastructure activity in 20Array6 thereby increasing aggregates demand.
However, construction labor shortages and other bottlenecks hurt demand growth to some extent. Moreover, Vulcan Materials witnessed some below-normal demand trends in some markets of Texas, like Houston, and some of the coastal areas in the fourth quarter due to volatility in the energy sector.
Nonetheless, the company enjoys strong fundamentals and should be able to withstand these short-term headwinds and do well in 20Array6.
Vulcan Materials carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector are Cementos Pacasmayo SAA CPAC, U.S. Concrete, Inc. USCR and CEMEX, S.A.B. de C.V. CX. While U.S. Concrete sports a Zacks Rank #Array (Strong Buy), the other two have a Zacks Rank #2 (Buy).
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