Postelection Optimism Boosts U.S. Building Materials Firms
But it’s uncertain whether Trump’s infrastructure spending plan will be executed in its proposed form.
U.S. aggregates and concrete companies rallied sharply following the election of Donald Trump as America’s next president. On one hand, we think this makes sense. Unlike globally fungible commodities like steel or copper, cement, aggregates, and concrete are almost entirely consumed near their production sites because of their low value/weight ratios. As a result, increases in infrastructure spending would benefit the financial performance of Vulcan Materials (VMC), Martin Marietta Materials (MLM), Summit Materials (SUM), and U.S. Concrete (USCR). On the other hand, we’re skeptical that the touted $1 trillion infrastructure spending plan will be executed in its proposed form. We think the shares of these companies are now pricing in significant growth, and we see little risk-adjusted upside at this time.
During his campaign, Trump proposed to spend $1 trillion over a 10-year period to repair roads, bridges, and other infrastructure. In part, he hopes to lean on private spending to achieve his goal, with $137 billion in tax credits for construction companies that would then borrow on the open market to fund projects with attached revenue streams--a toll road, for example. U.S. infrastructure construction (including transportation, highway and street, sewage and waste disposal, water supply, conservation, and development) is set to total about $180 billion in 2016. Tacking on an additional $100 billion would translate to a 55% increase in annual spending. However, we don’t think a full $100 billion increase is likely.
Kristoffer Inton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.