Morningstar | LafargeHolcim Faces Near-Term Cost Headwinds amid Strong Demand Backdrop; Shares Look Undervalued
LafargeHolcim continued to generate strong performance into the third quarter, with like-for-like revenue growth of 5.8% and recurring EBITDA growth of 8.1%. Volumes grew across all products, with cement and aggregates showing particular strength with 6% year-over-year growth. Furthermore, with the exception of Middle East Africa, LafargeHolcim saw mid- to high-single digit sales growth in all regions. Better volume and prices overshadowed higher than expected input cost inflation, which we expect to be a temporary headwind.Based on the strong volume demand, the company raised its revenue growth guidance to 4% to 6% on a like-for-like basis, up from 3% to 5%. However, because of cost inflation, it reduced its recurring EBITDA growth guidance to a range of 3%-5%, down from 5%. We've made minor changes to our near-term forecast, but our long-term forecast remains largely intact. As a result, we're maintaining our fair value estimate of CHF 60 per share for narrow-moat LafargeHolcim.
Global economic fears have weighed on building materials stocks like LafargeHolcim. Its share price has fallen to nearly CHF 40 per share from CHF 60 per share at the start of the year. Yet, as its third quarter reflected, the company continues to see strong underlying demand lifting its performance. We see a disconnect between market fears and performance, which leaves shares undervalued with attractive risk-adjusted upside.
For more details on our country-by-country cement demand forecast, please see our Basic Materials Observer "Global Cement Outlook."
LafargeHolcim is a producer of cement and aggregates. Co. also supplies ready-mix concrete, concrete products, asphalt and a range of services. Co. operates through three segments: cement, aggregates, and other construction materials and services. Co.'s cement segment provides a range of cementitious materials and also develops customized blends for special applications. Through its aggregates segment, Co. produces aggregates which include crushed stone, gravel and sand mainly used in the manufacture of ready-mix concrete, concrete products and asphalt, as well as for road building and railway tracks, with production centered on quarrying, preparing and sorting the raw material.
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