Does Vulcan Materials Deserve a Place in Your Portfolio?

Building materials company Vulcan Materials Company (VMC) in Birmingham, Ala., produces and supplies construction aggregates primarily in the United States. The company operates through its four broad segments: Aggregates; Asphalt; Concrete; and Calcium.

Recently, Mexican President Andres Manuel Lopez Obrador stated that the country would go to local and international courts if an agreement could not be reached with VMC over its mining activity in the Quintana Roo state. In May, the Mexican government shut down the company’s operations on concerns about the effects of its underwater limestone extraction on the environment and water table. President Lopez Obrador has described VMC’s limestone extraction methods as an “ecological catastrophe.”

Over the past year, VMC’s stock has declined 10.1% in price and 20.6% year-to-date to close yesterday’s trading session at $164.87. It is down 4.3% over the past month but has gained 2.6% over the past five days.

Here are the factors that could affect VMC’s performance in the near term:

Mixed Financials

For its fiscal first quarter, ended March 31, VMC’s total revenues increased 44.2% year-over-year to $1.54 billion. Its adjusted EBITDA rose 20.3% from the prior-year quarter to $293.90 million. However, its net earnings attributable to VMC and EPS attributable to VMC came in at $91.80 million and $0.69, respectively, down 42.8% and 42.5% from the same period the prior year.

Stretched Valuations

In terms of its forward non-GAAP P/E, VMC is currently trading at 26.11x, which is 131.4% higher than the 11.29x industry average. The stock’s 3.78 forward EV/Sales multiple  is 147% higher than the 1.53 industry average. In terms of its forward Price/Sales, it is trading at 3.04x, which is 136.7% higher than the 1.28x industry average.

Favorable Analyst Sentiments

The $1.86 consensus EPS estimate for the quarter ending June 30, 2022, indicates an 18.5% year-over-year increase. Likewise, the $1.87 billion consensus revenue estimate for the same quarter reflects a 37.7% improvement from the prior-year period.

The Street’s $2.06 EPS estimate for the quarter ending Sept. 30, 2022, reflects a rise of 33.8% from the prior-year quarter, while the Street’s $2.02 billion  revenue estimate for the same quarter indicates a 40% year-over-year improvement.

Mixed Profit Margins

VMC’s trailing 12-month EBITDA margin, net income margin, and levered FCF margin of 24.20%, 9.99%, and 7.55%, respectively,  are 13.5%, 13.8%, and 31.5% higher than their 21.33%, 8.78%, and 5.75% industry averages. However, its trailing 12-month ROE, ROTC, and ROA of 9.53%, 5.76%, and 4.34%, respectively, are 27.5%, 21.9%, and 16.8% lower than the 13.16%, 7.37%, and 5.22% industry averages.

POWR Ratings

VMC has an overall C rating, which equates to Neutral in our proprietary POWR Rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

VMC has a Growth and Quality grade of C, in sync with its mixed financial growth in its last reported quarter and mixed profitability margins. The stock has an F grade for Value, consistent with its lofty valuations. It has a Sentiment grade of B, which is justified by its favorable analyst estimates.

In the 46-stock Industrial – Building Materials industry, it is ranked #40. The industry is rated B.

Click here to see the additional POWR Ratings for VMC (Momentum and Stability).

View all the top stocks in the Industrial – Building Materials industry here.

Click here to check out our Industrial Sector Report for 2022

Bottom Line

Analysts expect significant top- and bottom-line growth in the coming quarters. However, VMC’s limestone operation halt in Mexico might hurt its revenue stream. Furthermore, the stock looks overvalued at current prices. Thus, I think it might be wise to wait for a better entry point in the stock.

How Does Vulcan Materials Company (VMC) Stack Up Against its Peers?

While VMC has an overall POWR Rating of C, one might consider looking at its industry peers, Huttig Building Products, Inc. (HBP) and Owens Corning (OC), which have an overall A (Strong Buy) rating, and Chase Corporation (CCF) and Holcim Ltd (HCMLY) which have an overall B (Buy) rating. 

VMC shares were trading at $163.62 per share on Wednesday afternoon, down $1.25 (-0.76%). Year-to-date, VMC has declined -20.81%, versus a -12.98% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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