Morningstar | After Falling 40% Year to Date, Martin Marietta Shares Spike 8% as Results Continue to Improve
Prior to fellow aggregate producer Vulcan Materials’ third-quarter earnings release last week, Martin Marietta’s share price had dropped more than 40% year to date. After its peer reported results and an outlook that were far more encouraging than the market had been pricing in, Martin Marietta’s share price increased slightly. After reporting third quarter earnings on Nov. 6, its shares rose another 8%, as the company’s positive results diverged from the bearish sentiment that has weighed on the stock all year. We don’t see any surprises of note in Martin Marietta’s results. The sharp share price increase reflects the fact that fears of a slowdown have not materialized in the company's year-to-date results.Year over year, heritage aggregates volume and pricing improved roughly 3% over the prior year. This is a decent result, given that record precipitation in Texas and Hurricane Florence in the Carolinas impacted construction activity and deliveries in those key states. Nevertheless, EBITDA still rose 10% to $333 million.
Given the weather headwinds, the company cut its full-year guidance. It now expects full-year aggregates volumes of 167,000-170,000 tons. This represents a growth rate of 6%-8%, down from prior guidance of 11%-14%. Companywide, Martin Marietta now expects full-year adjusted EBITDA of $1.1-1.145 billion, down from $1.175-1.295 billion. The reduction is larger than we had anticipated, leading us to reduce our fair value estimate to $250 per share from $260 for narrow-moat Martin Marietta. Although weather headwinds are temporary, the ability to make up for lost ground generally takes time.
With shares currently trading at $190 per share, we view the stock as materially undervalued. Shares traded at nearly $230 per share as recently as July, and we’ve seen no signs to suggest that a slowdown is more likely to take hold than it was earlier this year.
For more details on our outlook for Martin Marietta, please see our report “Martin Marietta Has a Solid Foundation for Massive Profit Growth.â€
For more details on our view of U.S. road construction, please see our report “Aggregates Stocks Are Priced for Growth--Do They Deserve It?â€
Martin Marietta Materials is a natural resource-based building materials company. The company supplies aggregates (crushed stone, sand and gravel) through its network of quarries, mines and distribution yards. The company also provides cement and downstream products, namely, ready mixed concrete, asphalt and paving services. The company conducts its Building Materials business through three segments: Mid-America Group, Southeast Group and West Group. The Mid-America and Southeast Groups provide aggregates products only. The West Group provides aggregates, cement and downstream products. The company also has the Magnesia Specialties segment, which includes its magnesia-based chemicals and dolomitic lime businesses.
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