2023-12-20 14:03:39 ET
Summary
- Today, we look at Vulcan Materials Corporation, whose stock has risen 40% since mid-May, but insider selling and stretched valuations raise concerns.
- The company operates within four business segments, with its Aggregates business being the most well-known and profitable business line.
- Vulcan Materials is well run, but the recent rally in the stock seems overdone. An analysis follows in the paragraphs below.
The needs of the many outweigh the needs of the few ." - Spock, Star Trek .
Today, we take our first look at Vulcan Materials Company ( VMC ). The stock is up some 40% since its recent lows of mid-May. The stock saw a noticeable pick up of insider selling in November, and the stock seems stretched from several valuation metrics. Can the rally continue, or are the shares overdue for some profit taking? An analysis follows below.
Company Overview:
Vulcan Materials Corporation is headquartered in Birmingham, AL, and operates via four business segments: Aggregates, Asphalt, Concrete, and Calcium. The most well known of which is its Aggregates business that provides crushed stones, sand and gravel, sand, and other aggregates; and related products and services that are applied in construction and maintenance of highways, streets, and other public works. The stock currently trades near $225.00 a share and sports an approximate market capitalization of $29.5 billion.
Vulcan's U.S. Footprint (October Company Presentation)
Third Quarter Results:
Vulcan posted its Q3 numbers on October 26th. The company delivered $2.32 a share of Non-GAAP EPS as sales rose nearly five percent on a year-over-year basis to $2.19 billion. Both top and bottom line results slightly exceeding expectations.
October Company Presentation
Profits from its two largest divisions were as follows. Segment gross profit from its Aggregates division increased 17 percent to $508 million even as shipping volumes fell two percent from the same period a year ago. Asphalt segment gross profit was $56 million, lapping the $30 million produced in Q3 2022 as shipping volume rose 11%. Vulcan's concrete segment contributed $26 million of gross profit, while the small Calcium was in line with the same period a year ago.
October Company Presentation
Management provided FY2023 guidance for between $1.95 billion and $2 billion of adjusted EBITDA, which would be a 21% rise from FY2022.
Analyst Commentary & Balance Sheet:
Since third quarter results hit the wires, nine analyst firms including JP Morgan and RBC Capital have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered range $225 to $279 a share.
Less than two percent of the outstanding float of the stock is currently held short. There were only three insider transactions in the first 10 months of 2023. However, since October 31st, there have been six transactions from four insiders totaling nearly $2 million collectively in insider sales.
October Company Presentation
Vulcan exited the third quarter of this year with approximately $340 million of cash and marketable securities on its balance sheet against nearly $3.9 billion in long-term debt, according the 10-Q filed for the quarter.
Verdict:
Vulcan made $5.11 a share of profits in FY2022 on $7.32 billion worth of sales. The current analyst firm consensus has the company making $6.90 a share on $7.8 billion worth of revenue in FY2023, followed by $8.16 a share on a seven percent rise in sales in FY2024.
October Company Presentation
Vulcan is a well-run company with some significant moats around its business. It got a big boost from all the infrastructure spending pass via federal legislation recently. Highway starts were up 18% year-over-year as but one example of this funding. However, given the federal government ran a $2 trillion deficit in FY2023 and the U.S. now has the highest debt to GDP ratio in its history, don't look for that largess to be repeated in the future. It is hard to see the company achieving similar price increases in Vulcan's two largest divisions it saw in the third quarter going forward as well.
Given the myriad challenges in the commercial real estate market, new construction from that sector is likely to be tepid in coming years. The recent fall in mortgage rates helps the housing sector on the margins, but new home construction is likely to remain significantly under pre-pandemic days. Multi-Family building permits just hit a three year low, it should be noted.
Vulcan Materials Company shares trade at just over 32 times FY2023E EPS and nearly four times revenues, and the stock pays a dividend of less than one percent. Given those valuations and considerable economic uncertainty heading into 2024, I am passing on any investment recommendation around Vulcan Materials at this time.
Evil does seem to maintain power by suppressing the truth ." - Spock, Star Trek .
For further details see:
Vulcan Materials: Recent Run Looks Overdone