Construction material prices increased about 20% last year. But the resumption of construction activities, rising renovation and remodeling activities in residential areas, and the money allotted by Congress to repair and replace the nation's bridges, should drive the construction materials industry’s growth.
Efforts to make the manufacturing of finished materials sustainable, and the introduction of smart technology to improve efficiency and user safety, bode well for the industry. Investors’ interest in this space is evidenced by the Invesco Dynamic Building & Construction ETF’s (PKB) 1.3% gains over the past week versus the SPDR S&P 500 Trust ETF’s (SPY) marginal returns. Moreover, the global construction and building materials market is expected to grow at a 5.8% CAGR to $1.28 trillion by 2025.
Given the industry’s solid growth prospects, we think it could be wise to invest in fundamentally-sound construction materials stocks CEMEX, S.A.B. de C.V. (CX), Emcor Group, Inc. (EME), Eagle Materials Inc. (EXP), Masonite International Corporation (DOOR), and JELD-WEN Holding, Inc. (JELD) now. These stocks are currently trading at valuations that are lower than their peers and so hold immense upside potential.
CEMEX, S.A.B. de C.V. (CX)
Based in Mexico, CX produces, distributes, sells cement, ready-mix concrete, aggregates, clinker, and other construction materials worldwide. The company provides building solutions for housing projects, pavement projects, green building consultancy services, cement trade maritime services, and information technology solutions.
On Feb. 2, 2022, CX and Synhelion, a developer of solar-to-syngas solutions using a high-temperature thermochemical process, announced the successful production of the world’s first solar clinker, the key component of cement. Replacing fossil fuels entirely with solar energy to heat the rotary kiln used to produce clinker could be a game changer in the industry’s efforts to achieve carbon neutrality by 2050.
CX’s net sales increased 3.5% year-over-year to $3.62 billion in its fiscal 2021 fourth quarter, ended Dec. 31, 2021. The company’s gross profit remained unchanged from the prior-year period at $1.09 billion. While its net income increased 179.1% year-over-year to $204.25 million, its earnings per ADS increased 200% to $0.15. The company had $612.82 million in cash and cash equivalents as of Dec. 31, 2021.
The $0.71 consensus EPS estimate for its fiscal year 2022, ending Dec. 31, 2022, represents a 29.3% rise from the prior-year period. Analysts expect CX’s revenue to rise 5.9% year-over-year to $15.59 billion. The company’s EPS is expected to grow at a 33.2% rate per annum over the next five years.
The stock has gained 6% in price over the past week to close yesterday’s trading session at $5.59. CX’s 0.77x forward EV/Sales is 59.3% lower than the 1.89x industry average. And in terms of forward Price/Sales, CX is currently trading at 0.46x, which 70% lower than the1.55x industry average.
It is no surprise that CX has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Momentum, and Quality. Click here to see the additional ratings for CX’s Growth, Stability, and Sentiment. CX is ranked #4 of 54 stocks in the B-rated Industrial - Building Materials industry.
Emcor Group, Inc. (EME)
EME provides electrical and mechanical construction and facilities services. The Norwalk, Conn., company specializes in designing, installing, integrating, and start-up distribution systems for electrical power, lighting systems, and low-voltage systems, such as fire and security alarms, voice and data communication, ventilation, and plumbing and piping. In addition, it provides industrial services for the oil, gas, and petrochemical industries.
On Aug.3, 2021, EME’s Shambaugh & Son L.P. subsidiary constructed the building shell and support utilities for the dairy plant MWC’s 400,000 square-foot cheese processing and whey drying facility. Shambaugh is a well-known self-performing design-builder of complex food, beverage, and pharmaceutical processing facilities. By designing the cheese processing and whey drying facility of the largest company in the Michigan dairy industry, EME should gain further market reach.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, EME’s revenues increased 14.5% year-over-year to $2.52 billion. The company’s gross profit came in at $381.34 million, indicating a 5% gain over the prior-year period. Its non-GAAP operating income came in at $137.42 million, representing a 1.2% year-over-year improvement. EME’s non-GAAP net income came in at $99.74 million, up 2.9% from the prior-year period. Its non-GAAP EPS increased 5.1% year-over-year to $1.85. And the company had cash and cash equivalents of $663.91 million as of Sept. 30, 2021.
Analysts expect the stock’s EPS to improve 8.8% in price year-over-year to $7.67 for its fiscal 2022, ending Dec. 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The $10.28 billion consensus revenue estimate for the same fiscal year represents a 4.7% rise from the prior-year period. And the company’s EPS is expected to grow at a 1% rate per annum over the next five years.
The stock has gained 0.8% in price over the past week to close yesterday’s trading session at $115.36. In terms of forward EV/Sales, EME is currently trading at 0.62x, which is 67% lower than the 1.89x industry average. In terms of forward Price/Sales, EME is currently trading at 0.64x, which is 58.8% lower than the 1.55x industry average.
EME’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Stability, Quality, and Sentiment. Click here to see the additional ratings for EME’s Growth and Momentum. EME is ranked #4 of 93 stocks in the B-rated Industrial - Services industry.
Eagle Materials Inc. (EXP)
Dallas, Tex.-based EXP produces and supplies heavy construction materials, light building materials, and materials used for oil and natural gas extraction in the United States. The company operates through Cement; Concrete and Aggregates; Gypsum Wallboard; and Gypsum Paperboard segments. Its products are used to construct homes, commercial and industrial buildings, and governmental buildings.
For its fiscal 2022 third quarter, ended Dec. 31, 2021, EXP’s revenue increased 14.4% year-over-year to $462.94 million. The company’s gross profit came in at $138.59 million, representing a 22.2% year-over-year improvement. Its EBIT was $137.50 million, representing a 20.2% rise from the prior-year period. Its EXP’s net earnings came in at $102.48 million for the quarter, up 26.2% from the year-ago period, and its EPS increased 30.4% year-over-year to $2.53. As of Dec. 31, 2021, the company had $17.39 million in cash and cash equivalents.
Analysts expect the company’s EPS to reach $9.27 for its fiscal year 2022, ending March 31, 2022, representing a 30.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $1.85 billion consensus revenue estimate for the same fiscal year indicates a 14% year-over-year improvement. The company’s EPS is expected to grow at an 8% rate per annum over the next five years.
The stock has gained marginally in price over the past week and ended yesterday’s trading session at $143.06. EXP’s 0.92x non-GAAP forward PEG is 20.2% lower than the 1.15x industry average.
EXP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Momentum. Click here to see the additional ratings for EXP (Value, Stability, Growth, and Sentiment). EXP is ranked #23 in the B-rated Industrial - Building Materials industry.
Masonite International Corporation (DOOR)
DOOR designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide. The Tampa, Fla.-based company serves contractors, builders, homeowners, retailers, dealers, lumberyards, and architects through wholesale, retail, and direct distribution channels, and local dealers.
On Jan.4, 2022, DOOR unveiled Masonite M-PwrTM Smart Doors, the first residential exterior doors to integrate power, lights, a video doorbell, and a smart lock into the door system. These doors employ technology to connect residential exterior doors to a home's electrical system and wireless internet network and enable homeowners to program and control the operations securely remotely. DOOR should witness growing demand for its smart doors in the coming months.
DOOR’s net sales for its fiscal 2021 third quarter, ended Oct. 3, 2021, came in at $652.21 million, representing an 11% rise from the prior-year period. The company’s operating income was $76.16 million for the quarter, compared to an $11.44 million loss in the year-ago period. The company had $393.73 million in cash and cash equivalents as of Oct. 3, 2021.
Analysts expect DOOR’s EPS to improve 21% from the prior-year period to $8.05 for its fiscal year 2022, ending Dec.31, 2022. It surpassed The Street’s EPS estimates in each of the trailing four quarters. The $2.62 billion consensus revenue estimate for the same fiscal year represents a 16.1% year-over-year improvement. The company’s EPS is expected to grow at a 50% rate per annum over the next five years.
Over the past week, the stock has gained 0.7% in price to end yesterday’s trading session at $96.23. DOOR’s 1.15x forward EV/Sales is 39.2% lower than the 1.89x industry average. In terms of forward Price/Sales, DOOR is currently trading at 0.90x, which is 41.7% lower than the 1.55x industry average.
DOOR’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Quality, Sentiment, and Momentum. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for DOOR’s Growth and Stability here. DOOR is ranked #2 of 61 stocks in the B-rated Home Improvement & Goods industry.
JELD-WEN Holding, Inc. (JELD)
JELD in Charlotte, N.C., designs, manufactures, and sells doors and windows worldwide. The company offers a line of residential interior and exterior door products, including patio doors, folding or sliding wall systems, non-residential doors, and wood, vinyl, aluminum, and wood composite windows. It also provides other ancillary products and services and serves wholesale distributors, retailers, and individual contractors and consumers.
For its fiscal year 2021 third quarter, ended Sept. 25, 2021, JELD’s net revenues increased 13% year-over-year to $3.48 billion. The company’s gross profit came in at $755.90 million, representing a 14.9% year-over-year improvement. Its operating income was $199.30 million, representing a 57.1% rise from the prior-year period. As of Sept. 25, 2021, the company had $443.90 million in cash and cash equivalents.
Analysts expect the company’s EPS to reach $2.42 for its fiscal year 2022, ending Dec. 31, 2022, representing a 30.8% rise from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $4.98 billion consensus revenue estimate for the same fiscal year indicates a 5.9% year-over-year improvement. The company’s EPS is expected to grow at a 29.3% rate per annum over the next five years.
The stock has gained 2.6% in price over the past week and ended yesterday’s session at $23.09. JELD’s 0.77x forward EV/Sales is 59.3% lower than the 1.89x industry average. And in terms of forward Price/Sales, JELD is currently trading at 0.46x, which is 70% lower than the 1.55x industry average.
JELD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value and Momentum. Click here to see the additional ratings for JELD (Growth, Sentiment, Stability, and Quality). JELD is ranked #16 of 61 stocks in the B-rated Home Improvement & Goods industry.
CX shares were trading at $5.69 per share on Friday afternoon, up $0.10 (+1.79%). Year-to-date, CX has declined -16.08%, versus a -5.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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