On Apr 15, we maintained a Neutral recommendation on
Vulcan Materials Company
) due to steady recovery in its end markets, despite weak fourth
Why the Neutral Recommendation?
Vulcan's fourth quarter 2012 results announced on Feb 14, 2013
were quite weak. Vulcan posted adjusted loss of 30 cents per
share in the fourth quarter of 2012, much wider than the Zacks
Consensus Estimate of a loss of 11 cents as well as the last
quarter's adjusted loss of 11 cents. Top line declined 1% due to
volume declines in the flagship Aggregates segment.
Persistent volume weakness remains a point of concern.
Vulcan's overall results in 2012 were significantly hurt due to
1% decline in aggregates shipments in 2012.
Following the weak fourth-quarter results, estimates mostly
moved downwards for 2013 and 2014. The Zacks Consensus Estimate
declined almost 39% to 11 cents while that for 2014 reduced 2.6%
to 76 cents over the last 60 days.
However, Vulcan is now witnessing a growing demand for private
constructions, specifically residential housing starts and
contract awards for non-residential buildings, following steady
recovery in the overall housing industry. Management is expecting
solid growth in aggregates demand and volume in 2013 as private
construction demand is expected to continue to rise.
Overall, Vulcan expects earnings growth to improve in 2013 on
the back of increased demand for both the aggregates and
non-aggregates businesses, pricing growth, funding stability,
aggressive cost control and some volume increase. Moreover, it
has solid fundamentals with its geographic diversity and high
barriers to entry for the aggregates industry.
However, as regards the public construction market, though the
number of large highways and industrial projects are expected to
grow with increased funding certainty from the new highway bill,
the timing of these projects is difficult for management to
predict. Accordingly, we prefer to wait for further visibility of
substantial growth in public sector construction.
Other Stocks to Consider
Vulcan carries a Zacks Rank #3 (Hold). Other stocks in the
building materials sector that are doing better and worth
Eagle Materials Inc.
Texas Industries Inc.
Martin Marietta Materials Inc.
); all carrying Zacks Rank #2 (Buy).
EAGLE MATERIALS (EXP): Free Stock Analysis
MARTIN MRT-MATL (MLM): Free Stock Analysis
TEXAS INDS (TXI): Free Stock Analysis Report
VULCAN MATLS CO (VMC): Free Stock Analysis
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