The pressing need to improve America’s infrastructure drove the Biden Administration to pass a bipartisan Infrastructure Law last fall, which has allocated significant funds to improve the country’s roads, rails, bridges, water, and broadband. This, combined with rising infrastructure activities in a reopening economy, should drive the infrastructure industry’s growth.
However, high inflation, a labor shortage, and deepening supply chain constraints have been of concern lately, with companies also grappling to deal with rising input costs of materials. But increasing investments in infrastructure projects should benefit companies in this space. Investors’ interest in infrastructure stocks is evident in the iShares Global Infrastructure ETF’s (IGF) 7.8% returns year-to-date versus the SPDR S&P 500 Trust ETF’s (SPY) 4.6% loss. The global construction market is expected to grow at a 10.8% CAGR to reach $22.87 trillion by 2026.
Given this backdrop, we think it could be wise to bet on fundamentally strong infrastructure stocks Builders FirstSource, Inc. (BLDR), A. O. Smith Corporation (AOS), Axalta Coating Systems Ltd. (AXTA), Watts Water Technologies, Inc. (WTS), and Altra Industrial Motion Corp. (AIMC), which have each declined more than 20% in price year-to-date. These stocks are rated Buy in our proprietary rating system.
Click here to checkout our Infrastructure Report for 2022
Builders FirstSource, Inc. (BLDR)
BLDR in Dallas, Tex., manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers. The company also distributes dimensional lumber and lumber sheet goods, millwork, windows, interior and exterior doors, and other building products. It offers a range of construction-related services, including professional installation, turn-key framing, and shell construction, spanning all its product categories.
On Jan. 5, 2022, BLDR acquired National Lumber, the largest independent building materials supplier in New England. National Lumber’s diverse building materials and service offerings, which include prefabricated components to millwork and a r strong R&R mix, will add even more depth to the value-added solutions BLDR customers rely on. This acquisition should strengthen BLDR’s presence in New England.
For its fiscal year 2021 fourth quarter, ended Dec.31, 2021, BLDR’s net sales increased 83.1% year-over-year to $4.64 billion. The company’s gross profit came in at $1.49 billion, representing a 122% rise from the prior-year period. BLDR’s income from operations was $621.79 million, up 190.7% from the year-ago period. While its adjusted net income increased 247.5% year-over-year to $532.40 million, its adjusted EPS increased 115.5% to $2.78. As of Dec. 31, 2021, the company had $42.60 million in cash and cash equivalents.
BLDR surpassed the Street’s EPS estimates in each of the trailing four quarters. The $20.06 billion consensus revenue estimate for its fiscal year 2022, ending Dec. 31, 2022, indicates a 0.9% year-over-year improvement. The company’s EPS is expected to grow at an 18.8% rate per annum over the next five years.
The stock has lost 25.1% in price year-to-date and closed Friday’s trading session at $64.20. BLDR’s trailing-12-month ROE, ROA, and ROTC are 58%, 20%, and 26.4%, respectively.
BLDR’s POWR Ratings reflect 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 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth, and a B grade for Value, Momentum, and Quality. Click here to see the additional ratings for BLDR’s Stability and Sentiment.
BLDR is ranked #3 of 65 stocks in the Home Improvement & Goods industry.
- O. Smith Corporation (AOS)
AOS in Milwaukee, Wisc., manufactures and markets residential and commercial water heating and water treatment equipment and in-home air purification products worldwide. The company distributes its products through independent wholesale plumbing distributors, retail channels consisting of hardware and home center chains, and directly to consumers through e-commerce.
On Oct.19, 2021, AOS acquired Giant Factories, Inc., a Canada-based residential and commercial water heater manufacturer, for approximately $192 million in cash. The acquisition of Giant Factories strengthens AOS’ position as a global supplier of residential and commercial water heaters and increases its market penetration in North America. It also supports AOS’ decarbonization efforts by increasing the amount of water heating products in its portfolio supplied by a renewable energy grid.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, AOS’ net sales came in at $995.50 million, representing a 19.3% year-over-year improvement. The company’s gross profit came in at $360.60 million, up 11.3% from the prior-year period. Its pre-tax income was $181.80 million for the quarter, indicating a 19.7% year-over-year improvement. Its net earnings came in at $139.60 million, up 16.3% from the prior-year period, and its EPS rose 17.6% year-over-year to $0.87. The company had $443.30 million in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect AOS’ EPS to improve 12.9% year-over-year to $3.41 for its fiscal 2022, ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $4.14 billion consensus revenue estimate for the same fiscal year represents a 17% rise from the prior-year period. The company’s EPS is expected to grow at an 8% rate per annum over the next five years.
AOS stock has declined 23.3% year-to-date and ended Friday’s trading session at $65.88. The stock’s trailing-12-month ROE, ROA, and ROTC have been 26.5%, 11.5%, and 18.7%, respectively.
AOS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality. Click here to see the additional ratings for AOS (Stability, Value, Momentum, Sentiment, and Growth).
AOS is ranked #15 of 77 stocks in the B-rated Industrial - Machinery industry.
Click here to check out our Industrial Sector Report for 2022
Axalta Coating Systems Ltd. (AXTA)
AXTA in Philadelphia, Pa., manufactures, markets, and distributes high-performance coatings systems internationally. The company operates through two segments─ Performance Coatings and Mobility Coatings. It offers a range of specially-formulated waterborne and solvent-borne products and systems used by the global automotive refinish industry to repair damaged vehicles.
On March 21, 2022, AXTA’s Axalta Mobility, a leading global coatings supplier that delivers world-class color and superior protection to vehicle bodies, was recognized by prominent automotive manufacturer General Motors Company (GM) as a 2021 Supplier of the Year in the paint category. By providing GM customers with innovative technologies and among the highest quality in the automotive industry amid the supply chain and global pandemic-related challenges last year, this honor should nurture AXTA’s long-term partnership with GM.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, AXTA’s net sales increased 5.8% from the prior-year period to $1.14 billion. The company had cash and cash equivalents of $840.60 million as of Dec. 31, 2021.
Analysts expect AXTA’s EPS to improve 9% year-over-year to $1.82 for its fiscal year 2022, ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $4.82 billion consensus revenue estimate for the same fiscal year represents a 9.1% rise from the prior-year period. The company’s EPS is expected to grow at an 18.3% rate per annum over the next five years.
The stock has declined 24.4% year-to-date to close Friday’s trading session at $25.03. AXTA’s trailing-12-month ROE, ROA, and ROTC are 17.5%, 4.4%, and 5.8%, respectively.
AXTA’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for AXTA’s Stability, Growth, Momentum, and Sentiment here.
AXTA is ranked #36 of 88 stocks in the A-rated Chemicals industry.
Watts Water Technologies, Inc. (WTS)
WTS in North Andover, Mass., designs, manufactures, and sells products, solutions, and systems that manage and conserve the flow of fluids and energy into, through, and out of buildings in the commercial and residential markets internationally. The company sells its products to plumbing, heating, and mechanical wholesale distributors and dealers, OEMs, specialty product distributors, do-it-yourself chains, retail chains, and directly to wholesalers and private label accounts.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, WTS’ net sales increased 17.5% year-over-year to $473.90 million. The company’s gross profit came in at $199.30 million, up 17.8% from its year-ago period. Its operating income was $63.70 million for the quarter, indicating a 16% gain over the prior-year period. WTS’ adjusted net income came in at $48 million, representing a 23.4% rise from the prior-year period. Its adjusted EPS increased 23.5% year-over-year to $1.42. WTS had $242 million in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect the company’s EPS to improve 8.2% year-over-year to $5.97 for its fiscal year 2022, ending Aug.31, 2022. The $1.89 billion consensus revenue estimate for the same fiscal year indicates a 4.4% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. WTS’ EPS is expected to grow at an 8% rate per annum over the next five years.
The stock has lost 27.8% in price year-to-date and ended Friday’s trading session at $140.16. WTS’ trailing-12-month ROE, ROA, and ROTC are 14.8%, 9%, and 12.3%, respectively.
WTS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality, and a B grade for Stability. Click here to see the additional ratings for WTS (Value, Sentiment, Growth, and Momentum).
WTS is ranked #8 of 39 stocks in the A-rated Industrial - Manufacturing industry.
Click here to check out our Industrial Sector Report for 2022
Altra Industrial Motion Corp. (AIMC)
AIMC designs, produces, and markets a range of electromechanical power transmission motion control products for use in various motion-related applications and high-volume manufacturing and non-manufacturing processes internationally. It operates through Power Transmission Technologies (PTT) and Automation & Specialty (A&S) segments. AIMC is headquartered in Braintree, Mass.
On Jan. 3, 2022, AIMC acquired Nook Industries LLC, a U.S.-engineered linear motion industry leader. Integrating into AIMC’s Thomson operating company in its Automation & Specialty segment, the Nook business should l expand the breadth of AIMC’s linear products offering and further enhance its portfolio of highly engineered products in the motion control and power transmission markets. This provides an opportunity to utilize AIMC’s scale to leverage fixed costs while also capitalizing on Nook’s production capacity to satisfy increasing customer demand.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, AIMC’s net sales increased 3.7% year-over-year to $469.80 million. The company had $246.10 million in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect AIMC’s EPS to grow 13.7% year-over-year to $3.66 for its fiscal year 2022, ending Dec. 31, 2022. The $2.05 billion consensus revenue estimate for the current year represents a 7.7% rise from the prior-year period. The stock’s EPS is expected to grow at a rate of 15% per annum over the next five years.
AIMC has lost 24% in price year-to-date and closed Friday’s trading session at $39.17. Its trailing-12-month ROE, ROA, and ROTC are 1.4%, 3.6%, and 4.4%, respectively.
AIMC’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.
The stock has a B grade for Value and Stability. Click here to see the additional ratings for AIMC (Quality, Growth, Sentiment, and Momentum).
AIMC is ranked #23 of 90 stocks in the Industrial - Equipment industry.
Click here to checkout our Infrastructure Report for 2022
BLDR shares were trading at $65.02 per share on Monday afternoon, up $0.82 (+1.28%). Year-to-date, BLDR has declined -24.14%, versus a -3.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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