Vulcan Materials Company VMC is making the most from strategic initiatives, growth in heavy industrial projects and residential end markets. Business acquisitions are also an important part of its growth strategy. Furthermore, the recent announcement of President Joe Biden’s infrastructure plan opens up opportunities for construction-related companies like Vulcan.
This construction-aggregates producer’s shares have gained 50.1% over the past year versus the Zacks Building Products – Concrete and Aggregates industry’s 83.8% rally. That said, earnings estimates for the current year have increased 0.6% over the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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What Makes the Stock an Attractive Pick?
Biden’s Infrastructural Deal: Recently, President Biden hailed a much-awaited bipartisan agreement on a $973-billion infrastructure plan over five years. The plan will have $579 billion in new spending over the next five years, which could open the door to the president’s momentous $4 trillion proposals later on. Biden administration’s endeavor to pump money into rebuilding the nation’s roads, bridges, and other infrastructure would give construction companies like Vulcan, Martin Marietta Materials, Inc. MLM, U.S. Concrete, Inc. USCR, Eagle Materials Inc. EXP and others a solid foundation for growth.
Solid End-Market Demand: Increasing public construction demand and a resurgence in demand on the private side, particularly residential, have been benefiting Vulcan. Even projects that were paused at the onset of the coronavirus pandemic have been resumed.
The company has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. Vulcan-served markets should continue to benefit from public construction demand, primarily led by significantly higher levels of highway funding in key states. Meanwhile, private consumer demand in the markets served has also been recovering steadily.
Strategic Plans: 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 — that enhance price growth as well as operating efficiencies. Higher price realizations and its four strategic initiatives should continue to increase unit profitability.
Improvement in pricing helped it achieve 12% growth in unit profitability and adjusted EBITDA (up 21.5%) for first-quarter 2021. Notably, gross profit per ton grew 12% on modest growth in volume and price as well as effective cost control. This marks the 11th consecutive quarter of year-over-year improvement in the company’s trailing 12-month unit profitability.
Inorganic Drive: Since becoming a public company in 1956, Vulcan followed a systematic inorganic strategy for expansion and has wrapped up various bolt-on acquisitions that contributed significantly to its growth. As of Mar 31, 2021, it completed more than two dozen value-enhancing acquisitions since 2014 in some of the fastest-growing markets in the country. During 2020, Vulcan purchased businesses that will support aggregates operations for a total consideration of $73,416,000 (both cash and non-cash).
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