We recently upgraded construction materials company, Vulcan Material Company (VMC) to a Zacks Rank #1 (Strong Buy).
Estimates for the company have been rising ever since it reported better-than-expected third-quarter results on Nov 4. Moreover, strong trends in private construction are boosting aggregates volume growth in Vulcan’s served states.
Vulcan Material gained 12% in 2014. The Zacks Consensus Estimate for 2015 earnings reflects year-over-year growth of a massive 103%.
We are encouraged by the company’s strong aggregate reserve positions, continued profit improvements, divestitures of non-strategic operations and significant debt reduction.
Strong Third-Quarter Results
Vulcan Materials’ third-quarter adjusted earnings of 54 cents per share soared 68.8% year over year and surpassed the Zacks Consensus Estimate of 51 cents by 5.8% driven by solid aggregates volume growth, improved margins and unit profitability.
Total revenue grew 7.4% year over year and beat the Zacks Consensus Estimate of $804 million by 8.7% owing to higher aggregate shipments and pricing coupled with improving results in other segments. Adjusted gross margin of 26.3% increased 500 basis points.
The Zacks Consensus Estimate for 2015 has gone up more than 5% over the past 90 days.
Core Aggregates Segment Doing Well
Vulcan is the largest producer of construction aggregates in the U.S. The company witnessed a sharp increase in aggregates demand from the second half of 2013 onward backed by increase in private construction demand — both residential and non-residential. Both residential housing starts as well as non-residential contract awards have improved steadily in 2014 due to job growth, more attractive lending standards and general economic recovery.
Vulcan Materials’ aggregate shipments have increased year over year for six consecutive quarters in the third quarter of 2014 in key markets like Florida, Texas, California, Georgia and Arizona. The company expects full-year 2014 aggregates shipments to increase at the higher end of the expected range of 7% to 9% following healthy aggregate volumes seen in the three quarters reported so far.
With improvement in the economic and job scenarios, non-residential construction and housing are expected to show further strength in 2015. Management thus expects Vulcan-served markets to perform well.
Other Stocks to Consider
Other stocks in the building and related sector worth considering include Headwaters Incorporated (HW), USG Corporation (USG) and Eagle Materials Inc. (EXP). While Headwaters and USG Corporation sport a Zacks Rank #1, Eagle Materials has a Zacks Rank #2 (Buy).
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