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MLM or VMC: Which Concrete & Aggregates Stock Should You Buy?

The Zacks Building Products - Concrete & Aggregates industry has been driving growth from solid home-building demand, a boost in infrastructural and public construction spending, bolt-on acquisitions, and operational efficiencies.

Although unprecedented supply-chain disruptions, weather and virus-related risks, and higher labor cost are eating into the industry players’ margins, companies like Martin Marietta Materials, Inc. MLM, Vulcan Materials Company VMC, Eagle Materials Inc. EXP and CRH plc CRH are building strength on their fundamental backdrops.

Spending on construction activity inched up 0.4% in November 2021 from October’s revised reading, per latest data released by the Commerce Department on Jan 3. On a year-over-year basis, the metric increased 9.3%. This winning streak is likely to continue in future as well, given impressive unemployment data (which improved 0.3 percentage points to 3.9% in December 2021 from the previous month), lower mortgage rates, rising mortgage applications and increasing buyer traffic.

President Joe Biden’s bipartisan infrastructure bill of $550 billion, in addition to approved funds of $450 billion for five years in August, is also adding to the positives. This bill comprises new investments in almost every infrastructure sector over the next five-year period, including transportation, energy, broadband and water.

Let’s check out whether Martin Marietta or Vulcan is a better Concrete & Aggregates stock to invest in right now. It is to be noted that both companies are almost neck to neck in terms of market cap and carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Determinants of the Stocks

MLM — having a market cap of more than $25.63 billion — is based out of Raleigh, NC. Martin Marietta produces and supplies construction aggregates as well as other heavy building materials (mainly cement) in the United States. Single-family housing strength, expanded infrastructure investment and heavy industrial projects of scale are expected to support near-term shipment levels. Also, the Tiller buyout complements Martin Marietta’s product offerings, thereby broadening its geographic reach and creating a leading aggregates position in the Minneapolis/St. Paul region in Minnesota. Further, the buyout of Southern Crushed Concrete is expected to help the company grow in the area of recycled concrete, which is principally used as a base aggregates product in infrastructure, commercial and residential construction applications.

VMC — with a market cap of almost $26.42 billion — is based out of Birmingham, AL. The company produces and supplies construction aggregates, asphalt mix as well as ready-mixed concrete. The company’s focus on four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing, and Logistics Innovation — can enhance price performance as well as operating efficiencies. Vulcan Materials has been generating higher earnings despite tepid revenues on the back of prudent cost-control efforts and increased pricing in aggregates. Its focus on a systematic inorganic strategy for expansion is adding to the positives.

Prospects & Stock Performance

Despite intense inflationary pressure and persistent supply issues, the industry has been growing. Depending on the ability to yield higher profits amid headwinds, both the companies are expected to generate higher earnings.

For Martin Marietta, the Zacks Consensus Estimate for 2022 earnings indicates 22.3% year-over-year growth. Vulcan’s bottom line for 2022 is likely to improve 25.2%. Meanwhile, Vulcan has a Momentum Score of A, while that of Martin Marietta is B.

Shares of Martin Marietta have gained 15.6% in the past six months compared with Vulcan’s 13.1% growth. Both the stocks have outperformed the industry’s 10.3% growth in the same period.

Undoubtedly, Vulcan is a clear winner in terms of earnings growth expectations and Momentum Score. However, Martin Marietta has impressed investors more than Vulcan in the past six months.

A Look at the Stocks’ Profitability & Valuation

Return on Equity in the trailing 12 months for Martin Marietta is 12.4% compared with Vulcan’s and the industry’s 10.4% and 7.1%, respectively. Markedly, Martin Marietta provides more impressive returns to investors than Vulcan and the industry.

The trailing 12-month price-to-earnings multiple for Martin Marietta and Vulcan is 34.16 and 40.88, respectively, compared with 27.77 for the industry. Although MLM is a bit inexpensive than VMC, both stocks are way costlier than the industry’s average.

Our Take

Martin Marietta certainly has an edge over Vulcan, as it is more attractive among investors and provides better returns at comparatively lower price. Yet, VMC is expected to generate better returns in future than MLM on the back of heavy industrial projects such as data centers and warehouses. Nonetheless, both companies remain optimistic about overall growth trends, given promising fundamentals and prospects.

A Brief Overview of the Other Two Stocks

Eagle Materials currently carries a Zacks Rank #2. This Dallas, TX-based company produces and supplies heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. Improved cement, concrete and aggregates sales volume, as well as solid contribution from the recently-acquired Kosmos Cement business, have been aiding the company. Higher pricing is also adding to the positives.

EXP has gained 17.9% in the past six months. Earnings for fiscal 2022 and 2023 are expected to grow 33.7% and 19.8%, respectively.

CRH currently carries a Zacks Rank #2. The firm manufactures cement, concrete products, aggregates, roofing, insulation and other building materials.

The company’s expected earnings growth rate for 2022 is 145.8%. The stock has gained 9.1% in the past six months.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Vulcan Materials Company (VMC) : Free Stock Analysis Report
 
Martin Marietta Materials, Inc. (MLM) : Free Stock Analysis Report
 
Eagle Materials Inc (EXP) : Free Stock Analysis Report
 
CRH PLC (CRH) : Free Stock Analysis Report
 
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