Bullish on Vulcan - Analyst Blog
July 05 2012 - 10:30AM
Zacks
We recently upgraded our rating on Vulcan Material
Company (VMC) from Neutral to Outperform as it stands to
benefit largely from a recovering housing market.
With a gradual recovery in the overall economy, the homebuilding
industry is finally seeing signs of stabilization in 2012. The
downturn during 2006-2007 had hurt the homebuilding sector hard. We
believe that the housing market is starting to benefit from an
increase in employment rates and higher consumer confidence. Houses
are more affordable now as mortgage loans come with relatively low
interest rates while renting becomes more expensive. As the new
home construction market recovers, the demand for the company’s
products has also gone up.
Further, we are encouraged by the company’s better-than-forecast
first half results, in particular the impressive performance at the
Aggregates segment which is slowly gaining momentum.Vulcan is the
largest producer of construction aggregates in the US. The
Aggregates business, which accounts for the lion’s share of the
company’s revenue, is slowly gaining momentum with signs of
recovery in the in the U.S. construction sector. The segment is
witnessing consistent volume growth driven by improving demand. The
segment’s net sales increased $73 million and gross profit was up
$53 million in the trailing six months ended March 31, 2012 versus
the prior-year period. Management also projects a much improved
earnings in this segment in 2012.
We also like the company’s strong market standing, steady volume
growth and expanded cost initiatives. Demand for public
construction projects, which account for more than half of the
company’s revenues, remains strong. Moreover, the private sector is
slowly recovering which until now was considered fragile.
It is worthwhile to note that rival Martin Marietta
Materials Inc.’s (MLM) attempt to take over Vulcan has
almost fallen apart with a court’s recent ruling restricting Martin
Marietta by at least four months to take over Vulcan. The order
removes a significant overhang for Vulcan, at least for some time
to come. In a hostile move, in December 2011, Martin Marietta
proposed to purchase all outstanding shares of Vulcan at a fixed
exchange ratio of 0.50 shares of Martin Marietta common stock for
each Vulcan common share. Vulcan management however found the offer
grossly inadequate.
Had Martin Marietta succeeded in its attempts, its four
directors would have contested in the election at the upcoming
Vulcan annual meeting in June this year. However, with the stay
denied, Martin Marietta’s attempt to nominate its directors to
Vulcan’s board will most probably be delayed until the next annual
meeting.
MARTIN MRT-MATL (MLM): Free Stock Analysis Report
VULCAN MATLS CO (VMC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Martin Marietta Materials (NYSE:MLM)
Historical Stock Chart
From Jun 2024 to Jul 2024
Martin Marietta Materials (NYSE:MLM)
Historical Stock Chart
From Jul 2023 to Jul 2024