Vulcan Materials Company Recommendation
BUY Key Information NYSE:
VMC
Current Price
$81.37
Fair Value
$97.00
2018 Target Price
$133.00
Annual Return
17%
Market Cap.
10.78B
2014 EPS
$1.54
2018 EPS
$5.21
2014 Gross Margin
20%
2018 Gross Margin
31%
Industry Average Gross Margin
43%
2014 Debt/EBITDA
3.4
2018 Debt/EBITDA
0.6
USF
MUMA
COLLEGE OF BUSINESS UNIVERSITY OF SOUTH FLORIDA
Company Overview Vulcan Materials Company is the nation’s largest producer of construction aggregates and a major producer of aggregates-based construction materials including asphalt and ready-mixed concrete. VMC’s products are used in nearly all forms of construction and are particularly important in the building and repair of infrastructure. Its business segments are Aggregates, Asphalt Mix, Concrete, and Calcium.
One Year Performance
Investment Thesis
Catalysts
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Materials Demand Inelasticity VMC’s products are integral to the construction and repair of infrastructure. However, there is resistance to opening new quarries. This leads to a supply-demand imbalance and price appreciation.
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Increased Infrastructure Spending The United States government has announced plans to significantly increase infrastructure spending.
Infrastructure Deterioration Infrastructure throughout the United States is in need of serious repair. The American Society of Civil Engineers rated the health of U.S. infrastructure as a D+. The society estimates $3.6 trillion must be invested by 2020 to complete vitally important repairs. VMC’s products are necessary in the repair of everything from bridges and roads to waterworks and ports. As a manufacturer of these required products, VMC will capitalize on ongoing and future infrastructure repairs.
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Pricing Power VMC is the largest supplier of aggregates in the nation, enabling significant pricing power. VMC’s materials have a long history of price appreciation.
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Strategic Geographic Positioning VMC operates from coast to coast, serving approximately 40% of U.S. states, including 7 of the 10 fastest growing states.
Risks •
Revenue Sensitivity Revenues are sensitive to government and private construction spending conditions.
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Seasonal Conditions Construction activity is impacted by weather conditions at both the local and national level.
Muma College of Business | Analysts: Jonnathan De Jesus, Daniel Dorman, Bianca Rodriguez
April 23, 2015
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