Summit Materials ( NYSE: SUM ) on Friday was rated as a Buy by analysts at Truist Securities. They said the maker of construction materials is seeing strong prices for cement and what are known as aggregates to make concrete and asphalt.
“Aggregates have been favored by investors given pricing history and lack of competition. Regardless, the cement industry has seen limited capacity adds and is expected to have strong pricing for some time to come running above cost,” Keith Hughes, analyst at Truist, said in a January 13 report. “Summit ( SUM ) is one of the few names to get exposure to cement production, which represents 20% of cash gross profit.”
Summit ( SUM ) has reduced its debt by selling assets, which has changed the makeup of its sources of earnings. The percentage of gross profit that comes from aggregates has grown from 30% in 2015 to an estimated 45% this year, according to Truist.
The investment bank set a price target of $40 a share for Summit, based on an enterprise value-to-EBITDA multiple of 10.7 times, which is a discount to peers such as Martin Marietta Materials ( NYSE: MLM ) and Vulcan Materials ( NYSE: VMC ), Truist said.
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Summit Materials rated Buy in new coverage at Truist Securities