Morningstar | Trimming Martin Marietta and Vulcan Materials’ Fair Value Estimates on Tempered Downstream Forecast. See Updated Analyst Note from 17 Dec 2018
We’ve reduced our forecasts for Martin Marietta’s and Vulcan Materials’ downstream businesses in asphalt and concrete to more accurately reflect the low fixed costs and difficulty in achieving significant margin expansion. We now forecast Martin Marietta to reach gross margin excluding freight and delivery of 33% by 2022, down from 37%, and Vulcan Materials to reach gross margin excluding freight and delivery of 40%, down from 43%.Because these downstream businesses account for a relatively small portion of gross profit (roughly 15% for each company in 2017), our trimmed forecasts lead to small reductions in our fair value estimates. Accordingly, we lower our Martin Marietta fair value estimate to $240 per share from $250, and we lower our Vulcan Materials fair value estimate to $125 per share from $135. Our update does not affect our view on either company’s aggregates and cement businesses, leaving both companies’ narrow moats intact.
We continue to see both companies as undervalued and see current share prices as attractive entry points for exposure to U.S. infrastructure.
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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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.
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