Vulcan Materials Co Valuation – July 2016 $VMC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Vulcan Materials Co (VMC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Vulcan Materials Company is a producer of construction aggregates (primarily crushed stone, sand and gravel) and a producer of asphalt mix and ready-mixed concrete. The Company has four segments organized around its principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. The Company operates approximately 344 aggregates facilities. The Aggregates segment produces and sells aggregates (crushed stone, sand and gravel, sand, and other aggregates) and related products and services (transportation and other). The Company has approximately 15.7 billion tons of permitted and proven or probable aggregates reserves. The Company produces and sells asphalt mix in Arizona, California, New Mexico and Texas. The Company produces and sells ready-mixed concrete in Georgia, Maryland, New Mexico, Texas, Virginia, Washington D.C. and the Bahamas. The Calcium segment consists of a Florida facility that mines, produces and sells calcium products.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of VMC – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,662,971,390 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.83 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 36.21% Pass
6. Moderate PEmg Ratio PEmg < 20 68.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.84 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.83 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.04 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

VMC value chart July 2016

EPSmg $1.84
MG Growth Estimate 15.00%
MG Value $70.84
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $26.68
MG Value based on 0% Growth $15.64
Market Implied Growth Rate 29.85%
Current Price $125.49
% of Intrinsic Value 177.15%

Vulcan Materials Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.4 in 2012 to an estimated $1.84 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 29.85% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Vulcan Materials Company scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

VMC charts July 2016

Net Current Asset Value (NCAV) -$20.81
Graham Number $49.54
PEmg 68.20
Current Ratio 2.83
PB Ratio 3.84
Current Dividend $0.50
Dividend Yield 0.40%
Number of Consecutive Years of Dividend Growth 3


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,007,503,000
Total Current Liabilities $356,485,000
Long-Term Debt $1,981,425,000
Total Assets $8,247,025,000
Intangible Assets $3,848,196,000
Total Liabilities $3,825,972,000
Shares Outstanding (Diluted Average) 135,452,000

Earnings Per Share History

Next Fiscal Year Estimate $3.29
Dec2015 $1.64
Dec2014 $1.54
Dec2013 $0.19
Dec2012 -$0.41
Dec2011 -$0.55
Dec2010 -$0.75
Dec2009 $0.25
Dec2008 -$0.04
Dec2007 $4.54
Dec2006 $4.69
Dec2005 $3.73
Dec2004 $2.77
Dec2003 $1.90
Dec2002 $1.66
Dec2001 $2.17
Dec2000 $2.16
Dec1999 $2.35
Dec1998 $2.50
Dec1997 $2.03
Dec1996 $1.79

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.84
Dec2015 $0.90
Dec2014 $0.36
Dec2013 -$0.24
Dec2012 -$0.40
Dec2011 -$0.04
Dec2010 $0.73
Dec2009 $1.85
Dec2008 $2.82
Dec2007 $4.01
Dec2006 $3.48
Dec2005 $2.73
Dec2004 $2.20
Dec2003 $1.95
Dec2002 $2.04
Dec2001 $2.24
Dec2000 $2.24

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – June 2015
30 Companies in the Spotlight This Week – 5/23/15
Vulcan Materials Company Annual Valuation – 2015 $VMC
17 Companies in the Spotlight This Week – 5/10/14
Vulcan Materials Company (VMC) Annual Valuation – 2014

Other ModernGraham posts about related companies

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Quanta Services Inc Valuation – February 2016 $PWR
Martin Marietta Materials Inc Valuation – February 2016 Update $MLM
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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