VMC - Embedded Expectations Analysis - 2019 04 18
Vulcan Materials Company (VMC:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 27.9x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about cost efficiencies, the impact of wet conditions on performance, and public sector construction material demand.Specifically, management may lack confidence in their ability to sustain cost efficiencies and EBITDA increases, navigate Asphalt segment cost headwinds, and manage SG&A expense. Moreover, they may be concerned about their weighted average interest rates on debt, guidance, and the impact of wet conditions on their operations and performance. In addition, they may be exaggerating the growth in public sector demand for construction materials, and their interest in potential quarry investments.
Vulcan Materials is a supplier of construction aggregates and a producer of asphalt mix and ready-mixed concrete. The company has four segments: Aggregates, which produces and sells aggregates (crushed stone, sand and gravel, sand, and other aggregates) and related products and services; Asphalt, which produces and sells asphalt mix in Alabama, Arizona, California, New Mexico, Tennessee and Texas, and includes asphalt construction paving in Alabama, Tennessee and Texas; Concrete, which produces and sells ready-mixed concrete; and Calcium, which consists of a Florida facility that mines, produces and sells calcium products.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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