VULCAN MATERIALS : VMC(NYSE)

CURRENT MARKET PRICE : $128.20

PRICE TARGET : $143.62

UPSIDE :12%

Company Overview

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

•Vulcan Materials is America’s largest producer of construction aggregates

•Its four principal products are:AggregatesAsphalt mixConcreteCalcium

•Operates in 20 states and has 304 aggregates facilities

•Its primary customers are the US government and private construction companies

HighwaysOther non building InfrastructureResidential buildingsNon residential buildingsNon construction

Key Multiples

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

2013 2014 2015 2016 2017 20180

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Annual Revenue

Fiscal Year

Rev

enue

in B

illio

ns

2013 2014 2015 2016 2017 20180

200

400

600

800

1000

1200

1400

1600

Annual EBITDA

Fiscal Year

EBIT

DA in

Mill

ions

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Cement Revenue Delivery Revenue Intersegment Revenue Asphalt mix & Concrete Revenue Aggregates revenue

• In 2015, 77% of total revenue was from Aggregates

• In the last 5 years Aggregates revenue has grown 60%

Performance

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Porter’s 5 Forces Analysis

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Buyers

Suppliers

Potential Entrants

Substitutes

Rivalry

-Many suppliers -High Bargaining power-Intensity: Low

-Few firms control market-Biggest competitors win -Intensity: Medium

-High start up costs-Economics of scale -Intensity: low

-Few substitutes -More like a commodity -Intensity: Low

- Many buyers- Needed for

Construction - Standardized

Product- Intensity: medium

Management Overview

•MBA Wharton School of Business

•President of Florida Rock prior to joining VMC in 2010

•Compensation base: ◦ $891,668.00 + bonus

•Based on: • EPS Growth• Margin expansion• revenue growth

Company Overview

Internal Analysis Recommendation

Investment Thesis Valuation Risks and

Catalysts

  

• MBA Stanford Business school

• Joined VMC in 2011

• Became CFO in 2014

• Prior to VMC worked at McKinsey & Co.

• Earned total 2.6 million

CFO- John McPhersonCEO-Thomas Hill

RecommendationWe recommend a long position in Vulcan Materials at their current market price of $128.20

Company Overview

Internal Analysis Recommendation

Investment Thesis Valuation Risks and

Catalysts

It’s undervalued between 10-20%

The market overlooked the results of it’s last quarterly report

The recent surge in demand for construction materials

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Investment Thesis

VMC Trading at a Discount

Fixing America’s Surface Transportation Act (FAST)

New proposed infrastructure Spending

Investment Thesis I

Company Overview

Internal Analysis Recommendation

Investment Thesis Valuation Risks and

Catalysts

•Trading at a discount due to poor weather conditions •Poor Q2, and Q3 earnings•Revenues $1.01 Billion vs $1.11 Billion estimation•$1.01 EPS vs 1.04 EPS estimation

Investment Thesis II•Fixing Americas Transportation Act (FAST)•USA Government plan to spend $305 billion over 5 years on infrastructure•North America deteriorating at quickest rate in the world •25% of bridges in USA are deficient•32% of roads are in poor condition•Spending on roads, bridges, and rail lines

Company Overview

Internal Analysis Recommendation

Investment Thesis Valuation Risks and

Catalysts

Investment Thesis III•New proposed Infrastructure spending •Trump plans to spend over $500 billion on infrastructure •Subsides/ tax credits to construction companies •Spending on airports, bridges, and roads

Company Overview

Internal Analysis Recommendation

Investment Thesis Valuation Risks and

Catalysts

Valuation•We formulated our target price using the forward P/E ratio

(Forward P/E*2017 eps)= target price

(33.40*4.3)=143.62

• This target price would yield a 12% return

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Valuation•Vulcan materials is a frequent issuer of dividends

•Theoretical price indicates that it’s undervalued

Company Overview

Internal Analysis Recommendation Investment

Thesis Valuation Risks and Catalysts

Risks and Catalysts Risks

•Federal Funding

•Weather

•High competition = lower pricing

•Earnings sensitive to volumes

•Government regulations, requirements

Catalysts•Presidential election

•Infrastructure spending

•Effective cost management

•M&A activity

•Quarterly Earnings

Company Overview

Internal Analysis Recommendation Investment

ThesisValuation Risks and

Catalysts