Vulcan Materials Company VMC is engaged in the production, distribution and sale of construction materials such as aggregates in the U.S. and Mexico. The company has four principal product lines: Aggregates, Concrete, Asphalt mix and Calcium.
Amid a volatile U.S. stock market, uncertainty surrounding the Fed rate hike, and volatile gasoline prices, the demand for construction materials remains strong.
Now let’s take a closer look to understand why Vulcan Materials is worth buying.
Good Rank and Solid Growth Score
Vulcan Materials has a Zacks Rank #2 (Buy) and a favorable growth style score of ‘B.’ Back-tested results show that only stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Positive Earnings Surprises and Share Price
Vulcan Materials’ shares have gained about 26% year-to-date. Last quarter, the company reported a robust positive earnings surprise of 333.33%. Moreover, the company surpassed estimates in two out of the past four quarters, resulting in an average positive surprise of 89.17%.
Robust Demand for Aggregates
Vulcan witnessed a sharp increase in aggregates demand since the second half of 2013, backed by an increase in private construction demand — both residential and non-residential. Vulcan Materials’ aggregate shipments increased year over year for the 11th consecutive quarter in the first quarter of 2016.
Vulcan is the largest producer of construction aggregates in the U.S. The aggregates giant possesses the largest proven and probable reserve base in the country and is in the best position to capitalize on the rapidly increasing demand for aggregates.
Strong Quarterly Results and 2016 Outlook
After a solid performance in 2015, Vulcan Materials started 2016 on a strong note amid favorable demand trends in the construction end markets. Vulcan Materials’ first quarter 2016 adjusted earnings of 26 cents per share surpassed the Zacks Consensus Estimate, for the second time in a row. Moreover, the bottom line marked a massive turnaround from the prior-year quarter loss of 16 cents on the back of higher revenues and robust margins.
Backed by robust first quarter results, the company raised its adjusted EBITDA and aggregates shipments guidance for 2016. Construction activity and demand for aggregates continue to recover across all the markets in both private and public sector, which, coupled with strong pricing momentum, should support revenues further in 2016.
Demand for Highway Construction on the Rise
Public sector construction includes spending by federal, state and local governments for construction of highways, bridges, airports, dams, roads and other infrastructure construction. Publicly-funded construction accounts for approximately 50% of Vulcan Materials’ total aggregate shipments.
Large transportation projects and growth in contract work for highways has steadily increased the demand for Vulcan’s products in the public construction market. Moreover, a multi-year highway bill — the five-year, $305 billion FAST Act — was enacted in Dec 2015 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 late 2016/2017, thereby increasing aggregates demand.
Other Stocks to Consider
Some stocks performing well in the construction sector include Martin Marietta Materials, Inc. MLM, Summit Materials, Inc. SUM Eagle Materials Inc. EXP, all sporting a Zacks Rank #2 (Buy).
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