The Biden administration hit the ground running with policy moves to help the country recover from the economic carnage caused by the COVID-19 pandemic. And with the ink barely dry on his top priority, passage of the $1.9 trillion American Rescue Package Act this month, the President now hopes to revamp America’s infrastructure and quality of life through an estimated $3 trillion infrastructure bill.
The package is said to be split into two legislative pieces, beginning with legislation that incorporates Biden’s Build Back Better agenda. The first part is focused on rebuilding infrastructure, such as roads and bridges, while the second component is focused on the care economy, with funding for the likes of universal pre-K and free community college, for example. Biden is expected to unveil the details of the first legislative piece tomorrow and of the second piece in April.
While the infrastructure sector is not yet out of the recessionary woods, investors have begun to target construction stocks, especially cement producers. This is evidenced by the Invesco Dynamic Building & Construction ETF’s (PKB) 35.7% gains over the past six months compared to the S&P 500’s 19.2% returns. Cement is the most widely used construction material worldwide. Given this favorable backdrop, we think CRH Plc (CRH), James Hardie Industries Plc (JHX), Cemex, S.A.B. de C.V. (CX), and Loma Negra Compania Industrial Argentina S.A. (LOMA) could be worth adding to your portfolio now.
Click here to check out our Infrastructure Sector Report for 2021
CRH Plc (CRH)
Dublin-based CRH manufactures and distributes building materials. The company supplies aggregates, asphalt, ready-mixed concrete, cement, paving and other construction services across Europe, the Americas and internationally. CRH operates in three segments—Americas Materials, Europe Materials, and Building Products.
CRH has been on an expansion drive lately. The company spent $405 million in completing 17 acquisitions in 2020, with the most significant one being the acquisition last December of Barriere Construction, a vertically integrated asphalt and paving operation in Southern Louisiana, for approximately $120 million. On the divestment front, the company completed 12 transactions and realized total business and asset disposal proceeds of approximately $307 million. In addition, CRH recently divulged its intention to recommence its share buyback program and complete the purchase of a further tranche of up to $300 million by the end of June 2021.
For the full-year 2020, CRH reported revenue of $27.6 billion, declining 2% year-over-year, due primarily to project delays caused by the coronavirus pandemic. Its cement business delivered operating profit growth for the year, driven primarily by strong price realization, performance improvement initiatives and cost saving measures. Its sales volumes in the U.S. were 2% ahead of the prior year. In fact, cement consumption in Southeast Brazil increased during the year enabling CRH to achieve volume growth, resulting in operating profit improvements. However, its EPS came in at $1.42, compared to the year-ago value of $2.13.
In 2020, CRH adopted the Ash Grove brand for all its North American cement businesses, unifying 12 cement plants and 42 cement terminals under one recognized brand. Company management has a strong acquisition pipeline and believes that the company is well positioned to capitalize on growth opportunities for future value creation. CRH has surged 82.6% over the past year and may gain more; Wall Street analysts expect CRH’s EPS to rise at an average rate of 6.6% per annum over the next five years.
CRH’s POWR Ratings are consistent with this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
CRH has a B grade for both Stability and Sentiment. The stock is currently ranked #10 in the 55-stock, A-rated Industrial – Building Materials industry.
In total, we rate CRH on eight different levels. Beyond what we stated above, we have also given CRH grades for Growth, Value, Momentum, and Quality. Get all CRH’s ratings here.
James Hardie Industries Plc (JHX)
JHX is the world’s #1 producer and marketer of high-performance fiber cement and fiber gypsum building materials . The company offers fiber cement interior linings, exterior siding products, and fiber cement building materials for a range of applications, including external siding, internal walls, floors, ceilings, soffits, trim, fencing, and decking. JHX serves the international market through the following segments: North America Fiber Cement, Asia Pacific Fiber Cement, Europe Building Products, and Research and Development.
At the beginning of the year, JHX made a voluntary redemption of its 4.75% senior unsecured notes due 2025 with a $410 million payment. With the redemption, JHX reduced its long-term gross debt balance to approximately $900 million from nearly $1.3 billion. The move aligned with its previously announced plan to reduce its gross debt by $400 million by the end of its fiscal year 2021 (ending 31 March 2021). In addition, in Australia and New Zealand, JHX significantly reduced its costs by consolidating fiber cement production at two plants.
In its fiscal third quarter (ended December 31, 2020), JHX delivered record global net sales of $738.6 million, increasing 20% year-over-year. Its North America Fiber Cement Segment contributed $518.1 million to its overall top-line and generated 19% exterior volume growth and 4% interior volume growth, which in turn drove 20% segment net sales growth. In fact, its adjusted ebit margin expanded 530 basis points to 22.7%, with continued operational improvement across all three operating regions. Its EPS came in at $0.15, surging 50% compared to the year-ago value of $0.10.
JHX has returned a whopping 178.6% over the past year. In a third-quarter letter to shareholders, CEO Jack Truong wrote, “The transformation we undertook to unlock capacity and increase efficiency in our global manufacturing network through lean initiatives and to better integrate our supply chain with our customers continues to deliver consistent market share gains.” In line with the continued growth in residential end markets, the company has raised its outlook for its fiscal year 2021. The Street further expects JHX’s EPS to grow at a rate of 15% per annum over the next five years.
It’s no surprise that JHX has a B overall rating, which translates to Buy in our POWR Ratings system. JHX has an A grade for Quality, and B for both Growth and Stability. It is ranked #15 in the Industrial – Building Materials industry.
In addition to the POWR Ratings grades we’ve just highlighted, one can see the JHX ratings for Value, Momentum, and Sentiment here.
Cemex, S.A.B. de C.V. (CX)
Mexico-based CX produces and sells cement, ready-mix concrete, aggregates, clinker, and other construction materials. The company also offers various complementary construction products, concrete pipes, and other precast products in the United States and internationally. In addition, it provides building solutions, cement trade maritime services, and information technology solutions.
CX has recently unveiled its plans to expand in the Dominican Republic and expects to recommission one of its production lines there, which could imply a 33% increase in its production capacity in the country. This increase would boost the cement industry’s self-sufficiency and would strengthen CX’s position to serve construction sector growth in the Caribbean. In addition, CX expanded its already strong Texas network last month by acquiring the ready-mix assets of Beck Readymix Concrete Co., which includes three strategically located concrete plants and one portable plant.
CX delivered an impressive earnings report for the fourth quarter ended December 31.The company’s net sales increased 9% year-over-year to $3.54 billion, representing its highest reported sales in a fourth quarter since 2014. Its U.S. operations reported net sales of US$1.0 billion, an increase of 8% from the same period last year. Its ebitda grew by double-digits on a year-over-year basis in most regions, which was attributable to significant momentum in cement volumes and cost savings under CX’s “Operation Resilience” program. Its net income for the quarter was $70 million, a significant improvement from the year-ago loss of $237.8 million.
CX has surged more than 260% over the past year. The company is innovating fast and recently introduced a ground-breaking hydrogen technology (which emits zero CO2 from combustion) as part of its fuel mix in all its cement plants in Europe. With an estimated $40 million investment program, CX is moving quickly to extend this technology to the rest of its operations worldwide , including the U.S. As CX paves the road to a more sustainable future, analysts expect the company’s current year revenue and EPS to rise 6.1% and 138.9%, respectively.
CX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. CX also has a B grade for Value. It is ranked #21 in the Industrial – Building Materials industry.
Click here to see additional POWR Ratings for CX (Growth, Stability, Momentum, Sentiment, and Quality).
Loma Negra Compania Industrial Argentina S.A. (LOMA)
LOMA produces and commercializes cement and its derivatives in Argentina and Paraguay. It offers masonry cement, aggregates, ready-mix concrete, and lime to wholesale distributors, concrete producers, industrial customers, and others for use in construction. The company operates through five segments—Cement, Masonry Cement and Lime, Concrete, Railroad, Aggregates and Other.
LOMA recently completed the replacement of an electrostatic filter at its integrated Zapala cement plant in Neuquén with a new baghouse filter. The company said the new product has the benefit of being able to work without an electricity supply and can operate at higher inlet temperatures than the previous filter, reducing water consumption by almost 50%.
LOMA’s net revenue increased by 20.6% year-over-year to $160 million in the fourth quarter (ended December 31, 2020) driven by its core cement segment. Its sales volumes for cement, masonry, and lime during the quarter increased 26.9% to 1.62 million tons as strong household and retail demand made a recovery and continued to drive bagged cement sales. Its bulk cement sales also posted robust volume growth of approximately 7%. LOMA’s net profit for the quarter were $46 million, surging 172.1% versus the year-ago value of $17 million.
The stock has gained 85.5% over the past year. Looking forward into 2021, LOMA’s management believes that construction activity will be one of the key sectors in driving the expected global economic turnaround. Consequently, the company continues to execute its strategic expansion project in its L´Amalí plant. Wall Street analysts estimate LOMA’s revenue for the current year to grow 40.3% year-over-year.
It’s no surprise that LOMA has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. LOMA has a B grade of B for both Value and Quality. It is ranked #8 in the Industrial – Building Materials industry.
In addition to the POWR Ratings grades I’ve just highlighted, one can see the LOMA ratings for Growth, Momentum, Stability, and Sentiment here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Click here to check out our Infrastructure Sector Report for 2021
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CRH shares were trading at $46.89 per share on Tuesday afternoon, up $0.58 (+1.25%). Year-to-date, CRH has gained 12.34%, versus a 5.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…
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