Morningstar | Martin Marietta Starts Strong in 2019, but Year-to-Date Share Price Rally Leaves Limited Upside
Although the first quarter is the weakest in the heavily seasonal building materials industry, Martin Marietta reported a strong start to 2019 with volume growth, price increases, and margin expansion. Organic volume and pricing for aggregates was up 12.5% and 4%, respectively. Better volumes drove cost leverage, driving aggregates gross margins wider to 18%.Martin Marietta saw similar strength in cement, as volume and pricing rose 7% and 4%, respectively. Gross margin contracted massively to 13.9%, but this was largely due to planned maintenance outages. Downstream businesses concrete and asphalt didn’t perform as well, weighed on by unfavorable weather in Colorado.
Amid the strong start to the year, the company reiterated its entire 2019 guidance, expecting to generate $1.17 billion to $1.28 billion EBITDA for the full year. Likewise, we’ve largely maintained our forecast, leading to no change in either its $240 per share fair value estimate or narrow-moat rating.
Roughly two months ago, Martin Marietta shares traded in the low-$180 per share range, and we argued that the market was pricing in slower growth ahead that overlooked the improving outlook for infrastructure activity. Since then, shares have rallied more than 20%, including a 4% rise as we write upon reporting first-quarter earnings. Shares now trade in 3-star territory, leading us to remove Martin Marietta from our Best Ideas list as we see limited risk-adjusted upside at the April 30 price.
Separately, on April 30, Democratic congressional leaders met with President Trump and agreed to aim for a $2 trillion infrastructure package. However, the source of funding has always been the challenge, and the meeting did not focus on how to pay for the potential deal. Although we think today’s political environment is favorable, we need to see more progress and details on funding before we're convinced the plan will come to fruition as proposed.
For more details on why we think today’s political environment is favorable for improved infrastructure funding, please see our report, “U.S. Infrastructure Spending Outlook Boosted by Midterm Elections.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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.