Yahoo Finance Martin Marietta (MLM) Rises 10.2% in 6 Months Despite Inflation
Martin Marietta Materials, Inc. MLM is well poised for 2023, given higher public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects. Yet, continued inflationary pressure and a slowdown in single-family residential construction are ongoing headwinds.
Indeed, this Zacks Rank #3 (Hold) company’s margins remain vulnerable to ongoing inflationary pressure and lower aggregate volume. Owing to these headwinds, the company’s shares have gained 10.2% over the past six months compared with the industry’s 16.1% growth.
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Factors Favoring the Stock
Higher Infrastructural Spending: Martin Marietta and other concrete & aggregates producers are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply-chain investments. The need to rebuild the nation’s deteriorating roads and bridges is expected to help MLM.
The company expects a diverse mix of federal projects for road and bridge work, water control, harbors and ports and the power grid, which will drive growth in 2023. MLM sees substantial opportunities in 2023 across federally funded infrastructure projects, industrial manufacturing, energy and power. It expects to deliver another year of profitable growth, strong cash flow and attractive returns for shareholders.
In the near term, the company expects affordability-driven headwinds in the single-family residential end market. This will be offset by a significant acceleration in public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects.
Higher Earnings Expectation: Despite the high inflationary pressures and flat aggregates shipments assumption for 2023, the company expects to continue to deliver accelerated margin expansion during the year. The margin expansion is due to the carryover effects of 2022 commercial actions and broad acceptance of Jan 1, 2023 price increases.
The Zacks Consensus Estimate for 2023 earnings of $14.84 per share calls for 23% year-over-year growth.
Long-Term Plan: Martin Marietta has been gaining strength from long-term strategic plans — markedly SOAR (Strategic Operating Analysis and Review) 2025 initiatives. It is to be noted that 2022 marked the 11th year of consecutive growth in consolidated products and services revenues, adjusted gross profit and adjusted EBITDA.
Martin Marietta has been focusing on SOAR plans that include portfolio optimization, assessing business combinations and arrangements with other companies engaged in similar businesses, increasing footprint in core businesses, investing in internal expansion projects in high-growth markets and pursuing new opportunities associated with the existing markets served.
Headwinds
Inflationary Pressures: The company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources, subject to potential supply constraints and significant price fluctuation, which could affect operating results and erode profits.
Gross margin across the business (barring Cement) contracted 180 basis points (bps) in 2022. In particular, the 2022 aggregates product gross margin decreased 160 bps to 28% due to higher diesel, repairs, internal freight and depreciation costs.
The Building Materials business gross margin (down 140 bps) was negatively impacted by inflationary pressure throughout the year. Magnesia Specialties’ gross margin was down 570 bps due to low demand from domestic steel industry customers for dolomitic lime products and higher energy and contract services costs.
3 Better-Ranked Construction Stocks Hogging the Limelight
Some better-ranked stocks which warrant a look in the Construction sector include:
Installed Building Products, Inc. IBP — holding a Zacks Rank #1 (Strong Buy) — is a leading installer of insulation and complementary building products. It primarily banks on a robust pipeline of acquisition opportunities across multiple geographies, products and end markets.
Installed Building’s earnings for 2023 are expected to decline 5.7%. Nonetheless, the same has moved north to $8.44 per share from $7.45 per share over the past 60 days, reflecting analysts’ optimism for its growth potential.
Eagle Materials Inc. EXP — holding a Zacks Rank #2 (Buy) — produces and supplies heavy construction materials and light building materials in the United States. EXP’s expected earnings growth rate for fiscal 2023 is 29.4%. This company surpassed earnings estimates in three of the trailing four quarters but met on one occasion, with the average surprise being 4.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Masco Corporation MAS — holding a Zacks Rank #2 — manufactures, sells and installs home improvement and building products.
MAS benefits from its market-leading brands, acquisition synergies and cost-saving move. Notably, its solid long-term growth prospect amid slow housing demand is commendable. MAS’ VGM score is A.
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