Vulcan Materials vs. CRH: Which Infrastructure Stock is a Better Buy?

CRH plc (CRH) in Rathfarnham, Ireland, and Vulcan Materials Company (VMC) in Birmingham, Ala. are two popular companies in the building materials industry. CRH manufactures and distributes a wide range of architectural, infrastructure, and construction products for infrastructure, housing, and commercial projects worldwide. It also offers network access products, paving, and construction services, and serves governments, contractors, homebuilders, homeowners, and sub-contractors. VMC produces and supplies construction aggregates, asphalt mix and concrete, and cement primarily in the United States.

As the infrastructure sector regains its momentum with the resumption of economic activities, an infrastructure spending bill that is moving closer to passage is brightening the prospects for companies that produce building materials. So, both CRH and VMC should benefit in the coming months.

While CRH's share price has gained 2% over the past month, VMC's has surged 5.9%. VMC is also a clear winner with 22.2% gains versus CRH’s 19.4% in terms of year-to-date performance. But, which of these stocks is a better pick now? Let’s find out.

Click here to check out our Industrial Sector Report for 2021

Latest Movements

On June 30, 2021, CRH agreed to repurchase up to $300 million of its ordinary shares from Societe Generale. The company intends to repurchase up to 10% of its ordinary shares issued and hopes to reduce its share capital.

On June 7, 2021, VMC and U.S. Concrete, Inc. (USCR), a leading supplier of aggregates and ready-mixed concrete, agreed to merge through VCM’s acquisition of all of the issued and outstanding shares of USCR common stock for $1.29 billion. USCR’s operations in large, attractive metropolitan areas will likely expand VMC’s footprint in the coming months.

Recent Financial Results

For its full fiscal year, ended December 31, 2020, CRH’s revenue decreased 1.9% year-over-year to $27.59 billion. The company’s gross profit came in at $9.16 billion, down 1.2% from the prior-year period. Its operating income has been reported at $2.26 billion for the quarter, down 19% from the year-ago period. CRH’s total comprehensive income was  $1.59 billion, representing a 28.1% year-over-year decline. Its EPS decreased 33.3% year-over-year to $1.42. As of December 31, 2020, the company had $7.72 billion in cash and cash equivalents.

VMC’s total revenues for its fiscal second quarter,  ended June 30, 2021, increased 2.9% year-over-year to $1.36 billion. The company’s non-GAAP gross profit was  $373.83 million, up 6.5% from the prior-year period. Its earnings from continuing operations have been reported at  $196.78 million for the quarter, representing a 6.7% year-over-year decline. While its net earnings decreased 6.9% year-over-year to $195.34 million, its non-GAAP EPS decreased 1.9% year-over-year to $1.57. The company had $857.56 million in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

CRH’s net income and EPS have declined at CAGRs of 21.5% and 16.1%, respectively, over the past three years. Its revenue increased at a 1.4% CAGR over the past three years.

Analysts expect CRH’s revenue to increase 6.6% year-over-year in the current year and 4.2% next year. Its EPS is expected to increase 9.4% year-over-year in the current year and 7.2% next year.

In comparison, VMC’s net income and EPS increased at CAGRs of 1.1% and 1.5%, respectively, over the past three years. Its revenue increased at a 6% CAGR over the past three years.

Analysts expect VMC’s revenue to increase 6.3% year-over-year in the current year and 8.4% next year. Its EPS is expected to increase 9.4% year-over-year in the current year and 20% next year.

Profitability

CRH’s trailing-12-month revenue is 5.6 times  VMC’s. However, VMC is more profitable, with a 26.8% EBITDA margin versus CRH’s 14.2%.

Also, VMC’s ROE, ROA and ROTC values of 11.2%, 5%, and 6%, respectively, compare with CRH’s 5.8%, 3.4%, and 4.4%.

Valuation

In terms of non-GAAP forward P/E, VMC is currently trading at 35.39x, which is 83.8% higher than CRH’s 19.25x. VMC’s 18.61x forward EV/EBITDA is 102.3% higher than CRH’s 9.20x.

In terms of forward EV/Sales, VMC’s 5.12x is 224.1% higher than CRH’s 1.58x.

POWR Ratings

Both CRH and VMC have an overall C grade, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, each weighted to an optimal degree.

CRH has a C grade for Value, which is consistent with its slightly higher-than-industry valuation ratios. CRH’s 9.20x forward EV/EBITDA is 18.6% higher than the 7.76x industry average. However, VMC’s D grade for Value reflects its overvaluation. The company has an 18.61x forward EV/EBITDA, which is 139.8% higher than the 7.76x industry average.

In terms of Quality, VMC has been graded a B, which is consistent with its higher-than-industry profitability ratios. VMC’s 18.5% trailing-12-month EBIT margin is 52.8% higher than the 12.1% industry average. In comparison, CRH has a C grade for Quality. The company has a 9.1% trailing-12-month EBIT margin, which is lower than the 12.1% industry average.

Of the 54 stocks in the B-rated Industrial - Building Materials industry, VMC is ranked #39, while CRH is ranked #29.

Beyond what we’ve stated above, our POWR Ratings system has also rated CRH and VMC for Momentum, Growth, Sentiment, and Stability. Get all VMC ratings here. Also, click here to see the additional POWR Ratings for CRH.

The Winner

Although a bipartisan infrastructure spending deal being negotiated now in the U.S. Congress forecasts a positive outlook for the building materials industry, VMC and CRH may not be able to capitalize on the tailwinds in the near term, given their weak financials. So, we think it could be wise to wait for better entry opportunities in these stocks.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Industrial - Building Materials industry.

Click here to check out our Industrial Sector Report for 2021

CRH shares were unchanged in after-hours trading Monday. Year-to-date, CRH has gained 21.69%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.

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.

More...