Construction Stocks

Vulcan Materials Co Valuation – February 2019 $VMC

Company Profile (excerpt from Reuters): Vulcan Materials Company, incorporated on February 14, 2007, is a supplier of construction aggregates (primarily crushed stone, sand and gravel) and a producer of asphalt mix and ready-mixed concrete. The Company operates through four segments: Aggregates, Asphalt Mix, Concrete and Calcium. As of December 31, 2016, it had 337 active aggregates facilities. The Company sells aggregates that are used as ballast for construction and maintenance of railroad tracks. It also sells riprap and jetty stone for erosion control along roads and waterways. In addition, stone can be used as a feedstock for cement and lime plants and for making a variety of adhesives, fillers and extenders. It sells construction aggregates outside of the United States, principally in the areas surrounding its quarry on the Yucatan Peninsula in Mexico.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of VMC – February 2019

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 $13,714,505,360 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.70 Fail
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 -1171.43% Fail
6. Moderate PEmg Ratio PEmg < 20 30.89 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.70 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 1.70 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.72 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.36
MG Growth Estimate 15.00%
MG Value $129.44
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $48.75
MG Value based on 0% Growth $28.58
Market Implied Growth Rate 11.20%
Current Price $103.86
% of Intrinsic Value 80.24%

Vulcan Materials Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.36 in 2014 to an estimated $3.36 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Vulcan Materials Company revealed the company was trading above its Graham Number of $55.91. The company pays a dividend of $1 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 30.89, which was above the industry average of 20.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.54.

Vulcan Materials Company receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.54
Graham Number $55.91
PEmg 30.89
Current Ratio 1.70
PB Ratio 2.70
Current Dividend $1.00
Dividend Yield 0.96%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,175,912,000
Total Current Liabilities $690,415,000
Long-Term Debt $2,778,129,000
Total Assets $9,875,635,000
Intangible Assets $4,268,969,000
Total Liabilities $4,729,846,000
Shares Outstanding (Diluted Average) 133,894,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.70
Dec2017 $4.46
Dec2016 $3.09
Dec2015 $1.64
Dec2014 $1.54
Dec2013 $0.19
Dec2012 -$0.41
Dec2011 -$0.55
Dec2010 -$0.75
Dec2009 $0.25
Dec2008 $0.01
Dec2007 $4.54
Dec2006 $4.71
Dec2005 $3.74
Dec2004 $2.77
Dec2003 $1.90
Dec2002 $1.66
Dec2001 $2.17
Dec2000 $2.16
Dec1999 $2.35
Dec1998 $2.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.36
Dec2017 $2.86
Dec2016 $1.77
Dec2015 $0.90
Dec2014 $0.36
Dec2013 -$0.24
Dec2012 -$0.40
Dec2011 -$0.03
Dec2010 $0.74
Dec2009 $1.87
Dec2008 $2.84
Dec2007 $4.01
Dec2006 $3.49
Dec2005 $2.73
Dec2004 $2.20
Dec2003 $1.95
Dec2002 $2.04

Recommended Reading:

Other ModernGraham posts about the company

Vulcan Materials Co Valuation – April 2018 $VMC
Vulcan Materials Co Valuation – July 2016 $VMC
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

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Disclaimer:

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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