Considering the demand for building materials across widespread verticals and the companies in this space enjoying stable profit margins, let’s check out fundamentally strong stocks that are gaining momentum: Griffon Corporation (GFF), Apogee Enterprises, Inc. (APOG) and Holcim Ltd (HCMLY). But first, let’s understand the industry landscape better.
As a testament to the construction industry’s resilience, jobs in the U.S. construction sector in August grew nearly 3% or by 212,000 on a year-over-year basis. On a month-over-month basis, the industry added a net 22,000 jobs compared to the previous month.
Moreover, due to the adoption of green building techniques, the dynamics of the industry have changed a lot. The U.S. green building materials market is expected to grow at a CAGR of 10.9% between 2023 and 2033, while the global industry CAGR is expected to be 11.2%, with the market estimated to reach $962 billion by 2033.
The global construction industry has witnessed significant growth in recent years due to increased infrastructure spending, rising demand for residential properties, and the adoption of new technologies and sustainable building practices. The global construction materials market is expected to expand from $1.32 trillion in 2023 to $1.73 trillion by 2030, exhibiting a CAGR of 3.9%.
Looking at the conducive trends of the Industrial – Building Materials industry, let’s start dissecting the fundamentals of the stocks mentioned above, starting with the third stock.
Stock #3: Griffon Corporation (GFF)
GFF provides consumer and professional home and building products in the United States, Europe, Canada, Australia, and internationally. It operates under the Consumer and Professional Products; and Home & Building Products segments.
On August 2, GFF declared a regular quarterly cash dividend of $0.125 per share, which was payable to shareholders on September 14, 2023. Its annualized dividend rate of $0.50 per share yields 1.23% on prevailing prices. GFF’s dividend payouts have grown at a CAGR of 14.5% over the past three years and a CAGR of 10% over the past five years.
On the same day, GFF amended its credit agreement, increasing the size of its revolving credit facility to $500 million and extending its maturity to August 1, 2028. This move should enhance the company’s financial flexibility and support growth initiatives.
GFF’s total revenue for the third quarter ended June 30, 2023, came in at $683.43 million. The company’s adjusted gross profit increased 4% year-over-year to $276.40 million.
Its adjusted earnings per common share from continuing operations grew 4.9% from the prior-year quarter to $1.29. The company’s adjusted EBITDA also increased by 2.8% from the previous year's figure to $138.61 million.
GFF’s EPS is expected to rise 6.2% year-over-year to $4.32 in the fiscal year that ended September 2023. Its revenue for the same period is expected to be $2.70 billion.
The stock has gained 35% over the past year and 32.4% over the past six months to close the last trading session at $40.67, higher than the 200-day moving average of $37.01.
GFF’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Momentum and a B for Growth, Value, Sentiment, and Quality. In the 48-stock A-rated Industrial - Building Materials industry, it is ranked #5.
To see additional POWR Ratings for Stability for GFF, click here.
Stock #2: Apogee Enterprises, Inc. (APOG)
APOG designs and develops glass and metal products and services in the United States, Canada, and Brazil. The company operates through four segments: Architectural Framing Systems; Architectural Glass; Architectural Services; and Large-Scale Optical Technologies (LSO).
On October 6, APOG declared a quarterly cash dividend of $0.24 per share, payable to shareholders on November 8, 2023. Its annual dividend of $0.96 yields 2.13% on the current price level. Its dividend payouts have increased at CAGRs of 8.4% and 8.9% over the past three and five years, respectively.
Additionally, the company expanded its share repurchase program by 2 million shares, totaling approximately 2.97 million shares. This reflects on the company’s ability to bolster shareholder returns.
For the fiscal first second quarter ended August 26, 2023, APOG’s net sales amounted to $353.68 million. Its operating income rose 26.4% year-over-year to $40.55 million. The company’s adjusted EBITDA increased 20.3% from the prior-year period to $51.15 million. Its adjusted EPS came in at $1.36, representing an increase of 28.3% year-over-year.
Street expects APOG EPS for the current fiscal year (ending February 2024) to increase 13.1% from the prior year to $4.50, while for the current quarter (ending November 2023), it is estimated to come in at $1.11, indicating an increment of 3.5% from the prior-year quarter. It surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 5.3% over the past year to close the last trading session at $45.09. It has also gained 3.5% over the past six months.
APOG’s POWR Ratings are consistent with its positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Momentum and a B for Quality. It is ranked #3 in the same industry. Click here to see APOG’s Growth, Stability, and Sentiment ratings.
Stock #1: Holcim Ltd (HCMLY)
Headquartered in Zug, Switzerland, HCMLY is a building materials and solutions company that offers cement, clinker, and other cementitious materials, aggregates, roofing systems, contracting, and services.
On September 6, HCMLY announced that it had inaugurated its Innovation Hub in Lyon, France, to showcase sustainable building solutions and promote co-creation for low-carbon, circular, and energy-efficient construction. This should boost the company’s operative capability.
On August 2, HCMLY completed the acquisition of Cooper Standard Technical Rubber GmbH (CSTR), a highly durable and technical rubber products company. This acquisition aligns with the company’s "Strategy 2025 - Accelerating Green Growth" aim.
In the first half of fiscal year 2023, HCMLY’s net sales amounted to CHF13.07 billion ($14.50 billion), while its recurring EBIT stood at CHF2.04 billion ($2.27 billion). Its group share net income rose 9% year-over-year to CHF1.26 billion ($1.40 billion). In addition, its EPS came in at CHF2.19, representing a 15.3% improvement from the prior-year period.
Analysts expect HCMLY’s EPS to rise 49.1% year-over-year to $1.17 for the current fiscal year (ending December 2023). Revenue and EPS are estimated to improve for the next fiscal year (ending December 2024) by 4.2% and 6.8% year-over-year to $31.47 billion and $1.25, respectively.
The stock has gained 54% over the past year to close the last trading session at $12.78, higher than the 200-day moving average of $12.70. It has also gained 24.2% year-to-date.
HCMLY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Stability and a B in Quality. Within the same industry, it is ranked first. Click here to find the ratings for Growth, Value, and Sentiment.
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HCMLY shares were trading at $12.57 per share on Wednesday afternoon, down $0.22 (-1.68%). Year-to-date, HCMLY has gained 22.16%, versus a 14.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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