As building materials companies are facing the test of time regarding the availability of labor, increasing interest rates, higher construction input, and material prices, the industry’s focus is shifting towards adopting green building initiatives.
Amid this, it could be an opportune moment to load up quality building material stocks, Holcim Ltd (HCMLY), GMS Inc. (GMS), and Apogee Enterprises Inc. (APOG), for substantial returns.
The ever-booming building materials industry enjoys consistent demand from various sectors such as real estate, manufacturing, automotive, electronics, healthcare, railways, education, and hospitality. Therefore, the companies in this space conventionally enjoy stable profit margins.
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%, while the global industry CAGR is expected to be 11.2%, with the market estimated to reach $962 billion by 2033.
Although the sector was marred by high input costs, rising interest rates, inflation, and supply chain snarls over the past year, investments by the government in housing, transportation, and manufacturing are expected to stimulate growth at an average annual rate of 3.7% through 2026.
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.
Moreover, 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%. Furthermore, the global building materials market size is projected to grow at a CAGR of 5.7%, reaching $398.47 billion by 2027.
Given the solid growth projections, adding fundamentally sound building materials stocks HCMLY, GMS, and APOG to your portfolio could be wise. Let’s take a closer look at the featured stocks.
Holcim Ltd (HCMLY)
HCMLY is a building materials and solutions company headquartered in Zug, Switzerland. Its offerings include cement, clinker, and other cementitious materials; aggregates, such as crushed stone, gravel, and sand; and ready-mix concrete, precast, concrete products, asphalts, mortars, roofing systems, and contracting and services.
On July 14, HCMLY was awarded three grants from the European Union (EU) Innovation Fund for its Carbon Capture Utilization and Storage (CCUS) projects in Belgium, France, and Croatia.
These projects were chosen for their potential for scalability, advanced technologies, and solid partnerships and are expected to contribute to the EU’s Green Deal initiative, very much an integral part of the company’s net-zero roadmap.
The grants by EU Innovation Fund would support HCMLY’s commitment to invest CHF2 billion ($2.32 billion) in CCUS projects by 2030. With these projects in line, the company should entrust faith in its shareholders as well as its focus on sustainability.
On June 15, the company acquired Minerales y Agregados, a leader in advanced mortars and adhesives in Guatemala, to improve its supply chain prospects while strengthening its geographical presence in North America. Further, this acquisition should also help HCMLY to strategize on its green growth objective and boost its products and solutions business.
In the fiscal year 2022, HCMLY’s net sales increased 8.8% year-over-year to CHF29.19 billion ($33.92 billion), while its recurring EBIT grew 3% from the year-ago value to CHF4.75 billion ($5.52 billion). Its net income, Group share, improved by 43.9% from the prior year to CHF3.31 billion ($3.84 billion).
In addition, its EPS came in at CHF5.48, representing a 46.9% improvement year-over-year. Also, its free cash flow stood at CHF 3.54 billion ($4.12 billion), up 8.6% year-over-year for the same period.
According to the company’s first-quarter trading update, its organic net sales have increased 8% year-over-year to CHF 5.73 billion ($6.53 billion). Its recurring EBIT grew organically by 12% from the year-ago value to CHF493 million ($572.95 million).
HCMLY is expected to witness revenue and EPS growth of 3.8% and 59.9% for the fiscal year 2023 (ending December 2023), to reach $32.21 billion and $1.25, respectively. Moreover, the stock surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 63.9% over the past nine months to close the last trading session at $13.61.
HCMLY’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 assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Stability and a B for Value and Quality. In the 47-stock A-rated Industrial - Building Materials industry, it is ranked #2. To see additional POWR Ratings for Growth and Sentiment for HCMLY, click here.
GMS Inc. (GMS)
GMS is a specialty building products distributor specializing in ceiling products, steel framing products, insulation, lumber, ready-mix joint compound, fasteners, safety products, and other interior construction products. It provides a selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada.
On May 2, the company expanded its presence on Vancouver Island with the acquisition of Jawl Lumber Corporation, which provides services under the Home Lumber & Building Supplies brand name. This move aligns with the company’s strategic priorities, which include platform expansion and complementary product growth.
On April 4, GMS made strategic acquisitions of Engler, Meier & Justus, Inc. in Chicago and Blair Building Materials, Inc. in Ontario, Canada.
It also announced further platform expansion activities with the openings of one new greenfield yard and two recent AMES store locations. This move should aid the company in expanding its footprint, scale, and product offerings.
GMS’ net sales increased 1.2% year-over-year to $1.30 billion in the fourth quarter that ended on April 30, 2023, while its gross profit rose 2.8% from the year-ago value to $424.48 million.
The company’s adjusted EBITDA amounted to $154.34 million, representing a marginal increase from the prior-year quarter. Also, its adjusted net income amounted to $88.59 million and $2.11 per share in the same period.
Street expects GMS’ revenue to increase marginally year-over-year to $1.38 billion in the first quarter (ending July 31, 2023). Its EPS is expected to be $2.38 in the same period and increase by 2.2% per annum over the next five years. Moreover, it surpassed the revenue estimates in all the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 67.2%, closing the last trading session at $70.84.
GMS’ 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 a B for Value and Quality. Within the same A-rated industry, it is ranked first. Click here to see GMS’ ratings for Growth, Stability, and Sentiment.
Apogee Enterprises, Inc. (APOG)
APOG is a leading provider of architectural products and services for enclosing buildings and performance glass and acrylic products used in applications for preservation, protection, and enhanced viewing. The company operates under four distinct segments- Architectural Glass; Architectural Framing Systems; Architectural Services; and Large-Scale Optical Technologies (LSO).
On June 22, APOG’s board of directors declared a quarterly dividend of $0.24 per share, payable to its shareholders on July 27, 2023.
The company’s four-year average yield is 2.25%, while its annual dividend of $0.96 translates to a 2.02% yield on current prices. Its dividend payouts have increased at CAGRs of 8.4% and 8.9% over the past three and five years, respectively. Also, it has a record of 11 years of consecutive dividend growth.
During the first quarter of fiscal 2024 that ended May 27, 2023, APOG’s net sales and operating income increased marginally from the year-ago value to $361.71 million and $33.77 million, respectively. Its gross profit grew 8.6% year-over-year to $92.99 million.
APOG’s net earnings amounted to $23.58 million, reflecting a 3.7% increase from the prior-year quarter, while its EPS rose 5% from the year-ago value to $1.05. In addition, its EBITDA came in at $43.76 million, representing a 1.7% increase year-over-year.
The company’s adjusted net income stood at $22.58 million and $22.73 million, up by 3.56% year-over-year. Also, its adjusted EBITDA improved by 2.4% from the prior-year quarter to $43.76 million.
Analysts expect APOG’s EPS for the fiscal second quarter (ending August 2023) to increase 7.4% year-over-year to $1.14, while its revenue is expected to be $370.35 million in the same period. Additionally, it surpassed the EPS estimates in each of the trailing four quarters, which is promising.
APOG’s shares have gained 11.2% over the past nine months and 24.9% over the past year to close the last trading session at $47.59.
It’s no surprise that APOG 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. Out of 47 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have APOG’s ratings for Growth, Stability, and Sentiment. Get all APOG ratings here.
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HCMLY shares were trading at $13.68 per share on Tuesday afternoon, up $0.07 (+0.48%). Year-to-date, HCMLY has gained 32.94%, versus a 19.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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