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Morningstar | Trimming U.S. Aggregates and Concrete FVEs Due to Tempered Housing Outlook and Hurricane Impact. See Updated Analyst Note from 03 Oct 2018

After taking a fresh look at the assumptions underlying our housing starts projections and considering recent trends in key housing data, we've lowered our expectations for new construction activity over the next decade. We now expect about 15 million cumulative housing starts between 2018 and 2027, about a 10% reduction from our previous forecast of approximately 16.8 million cumulative starts.

However, with some housing pundits proclaiming the housing market has peaked, we believe our revised forecast is still bullish relative to the consensus view. Indeed, we still see several more years of solid residential construction activity ahead driven by the large and aging millennials population, continued job and wage growth, and an increased supply of entry level homes. Our revised forecast calls for total starts to improve from 1.28 million in 2018 to 1.61 million in 2022 before moderating to 1.47 million by 2027. Previously, we projected total starts to grow from 1.30 million in 2018 to 1.93 million in 2021 and then moderate to 1.52 million by 2027. The main factors behind our moderated forecast are slower population growth driven by reduced immigration and a more difficult affordability environment than we had previously envisioned.

As well, we’ve also slightly reduced near-term estimates for Martin Marietta and Vulcan Materials due to the impact of Hurricane Florence. Summit Materials and U.S. Concrete have a smaller and nonexistent presence, respectively, in affected areas. Nevertheless, the impact is minor compared with the impact of the reduced housing forecast.

We’ve reduced our fair value estimates by about 2%. Narrow-moat Martin Marietta’s fair value falls to $260 per share from $265, narrow-moat Vulcan’s falls to $135 per share from $138, and narrow-moat Summit’s falls to $26.50 per share from $27. No-moat U.S. Concrete’s fair value falls by a slightly larger percentage to $73 per share from $75 due to a larger exposure to residential construction.


Our fourth quarter U.S. housing outlook, which we expect to publish in October, will provide investors with a more detailed review of our housing forecast revisions as well our top picks within housing related sectors.