Headquartered in Dublin, Ireland, CRH plc (CRH) manufactures and distributes building materials through its subsidiaries. It operates in three segments: Americas Materials, Europe Materials, and Building Products. The company manufactures and supplies cement, lime, aggregates, precast, ready-mixed concrete, and asphalt products. In comparison, Martin Marietta Materials, Inc. (MLM) in Raleigh, N.C. is a natural resource-based building materials company that supplies aggregates and heavy-side building materials to the construction industry internationally. In addition, it offers crushed stone, sand, and gravel products. The company also manufactures dolomitic lime primarily for customers in the steel and mining industries.
Infrastructure-related activities such as repairing roads, bridges, and ports are expected to go up significantly with the reopening of the economy, driving near-term growth for companies in this space. Moreover, President Biden expects a $1.2 trillion bipartisan infrastructure bill moving ahead on Monday. The passage of this bill would create many opportunities for infrastructure companies to grow in the long run.
MLM has gained 24.1% year-to-date, while CRH returned 14.7%. Also, MLM’s 37.6% gain over the past nine months is significantly higher than CRH’s 30.1% returns. Moreover, in terms of past years’ performance, MLM is the clear winner with 56.2% gains versus CRH’s 26.2% returns.
But which of these two stocks is a better buy now? Let’s find out.
On June 30, 2021, CRH agreed with Societe Generale to repurchase ordinary shares for a consideration of up to $300 million. The purpose of the share buyback is to reduce CRH’s share capital. The buyback will be conducted within the limits of the authority granted at CRH’s AGM on April 29, 2021, to repurchase up to 10% of the company’s ordinary shares issued.
On May 24, 2021, MLM entered an agreement under which it will acquire Lehigh Hanson, Inc.’s West Region business for $2.3 billion in cash. Ward Nye, Chairman, President, and CEO of the company, said, “With this acquisition, our company will be well-positioned to capitalize on long-term demand drivers from increased state infrastructure investment in California and Arizona.”
Past and Expected Financial Performance
MLM’s revenue and EBITDA grew at CAGRs of 6.6% and 13.2%, respectively, over the past three years. Analysts expect MLM’s revenue to increase 8.4% in its fiscal year 2021 and 7.1% in fiscal 2022. The company’s EPS is expected to grow 12.8% in its fiscal year 2021 and 15.1% in fiscal 2022. Furthermore, its EPS is expected to grow at a 14.1% rate per annum over the next five years.
In comparison, CRH’s revenue and EBITDA grew at CAGRs of 1.4% and 3.2%, respectively, over the past three years. The company’s revenue is expected to increase 5.9% in its fiscal year 2021 and 4.3% in fiscal 2022. Its EPS is expected to grow 9.3% in its fiscal year 2021 and 7.2% in fiscal 2022. CRH’s EPS is expected to grow at a 6.6% rate per annum over the next five years.
CRH’s trailing-12-month revenue is 6.19 times MLM’s. However, MLM is more profitable, with EBIT and net income margins of 22.22% and 17.04%, respectively, versus CRH’s 9.08% and 4.07%.
Also, MLM’s respective 13.55%, 5.86%, and 6.87% ROE, ROA, and ROTC compare favorably with CRH’s 5.83%, 3.38%, and 4.39%.
In terms of forward non-GAAP P/E, MLM is currently trading at 29.21x, which 57.9% higher than CRH’s 18.50x. Furthermore, MLM’s 16.53x forward EV/EBITDA is 85.9% higher than CRH’s 8.89x.
So, CRH is the more affordable stock.
CRH has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. MLM, in comparison, has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Both CRH and MLM have a B grade for Sentiment, which is in sync with analysts’ expectations that their revenue and EPS will increase at a moderate rate in the coming years. CRH also has a B grade for Stability, while CRH has a C Stability grade.
CRH has a C grade for Value, which is consistent with its 1.52x forward EV/S, which is 15.7% lower than the industry 1.80x average. In contrast, MLM has a D grade for Value, which is in sync with its 4.76x forward EV/S, which is 164.8% higher than the 1.80x industry average.
Of the 55 stocks in the A-rated Industrial – Building Materials industry, CRH is ranked #24. However, MLM is ranked #34.
The infrastructure sector is experiencing a solid revival with the reopening of economic activities. However, while both CRH and MML are expected to benefit in the coming months, we think it is better to bet on CRH now because of its lower valuation and impressive growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial – Building Materials industry here.
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CRH shares were trading at $48.60 per share on Thursday afternoon, down $0.25 (-0.51%). Year-to-date, CRH has gained 16.46%, versus a 17.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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