Rising infrastructure spending and the growing demand for residential and commercial spaces have boosted the demand for building materials. Building material companies are witnessing steady growth due to the consistent demand from different verticals.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the building materials industry looks well-positioned for sustainable growth.
Increased government spending on improving infrastructure, growth in privately owned housing starts, and the adoption of sustainable building practices are driving the demand for building materials.
Privately-owned housing starts in September were at 1,358,000, indicating a rise of 7% sequentially. Moreover, privately owned housing completions in September were at 1,453,000, a 6.6% rise sequentially. The global construction materials market is projected to grow at a CAGR of 3.9% to reach $1.73 trillion by 2030.
Furthermore, the world’s efforts to reduce emissions will boost the demand for green building materials. The green building materials market is expected to grow at a CAGR of 11.2% to reach $962 billion by 2033.
Considering this favorable backdrop, let’s take a look at the fundamentals of the three investment-worthy Industrial – Building Materials stocks, beginning with number 3.
Stock #3: GMS Inc. (GMS)
GMS distributes wallboard, ceilings, steel framing and complementary construction products. The company offers ceiling products, including suspended mineral fibers, soft fibers, and metal ceiling systems primarily used in offices, hotels, hospitals, etc. It also provides steel framing products, various other steel products used to frame the interior walls, and ancillary products comprising tools, fasteners, and safety products.
On October 3, 2023, GMS announced the acquisition of AMW Construction Supply, LLC. In addition, the company announced the recent openings of two greenfield yards and two new AMES store locations. GMS’ President and CEO John C. Turner, Jr., said, “We are pleased to announce the continued expansion of Complementary Products with the acquisition of AMW Construction Supply.”
“With a service-focused culture and deep tools and fasteners expertise, we are excited to welcome the AMW team to GMS. We look forward to leveraging their capabilities to further expand this business as we continue our focus on growing this margin accretive category,” he added.
In terms of the trailing-12-month gross profit margin, GMS’ 32.40% is 6.9% higher than the 30.31% industry average. Likewise, its 6.14% trailing-12-month net income margin is 1.2% higher than the industry average of 6.07%. Its 26.49% trailing-12-month Return on Common Equity is 112.3% higher than the industry average of 12.48%.
For the fiscal first quarter ended July 31, 2023, GMS’ net sales rose 3.7% year-over-year to $1.41 billion. Its cash provided by operating activities came in at $6.65 million, compared to cash used in operating activities of $4.40 million in the prior-year quarter. The company’s adjusted net income stood at $99.65 million. Also, its adjusted EPS came in at $2.40.
For fiscal 2025, GMS’ EPS and revenue are expected to increase 3.9% and 1.6% year-over-year to $8.31 and $5.38 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 36.3% to close the last trading session at $62.35.
GMS’ POWR Ratings reflect its solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 48 stocks in the A-rated Industrial – Building Materials industry. It has an A grade for Value and Momentum and a B for Quality. Click here to see the other ratings of GMS for Growth, Stability, and Sentiment.
Stock #2: Owens Corning (OC)
OC engages in the manufacturing and sale of insulation, roofing, and fiberglass composite materials. It operates in three segments: Composites, Insulation, and Roofing.
In terms of the trailing-12-month EBIT margin, OC’s 15.39% is 60.7% higher than the 9.57% industry average. Likewise, its 12.31% trailing-12-month net income margin is 103% higher than the industry average of 6.07%. Its 0.89x trailing-12-month asset turnover ratio is 11.9% higher than the industry average of 0.79x.
OC’s net sales for the third quarter ended September 30, 2023, came in at $2.48 billion. Its adjusted EBIT rose 6.4% over the prior-year quarter to $518 million. The company’s adjusted EBITDA increased 5.9% year-over-year to $644 million. Its adjusted earnings increased 7.4% year-over-year to $377 million.
In addition, its adjusted EPS came in at $4.15, representing an increase of 15% year-over-year. Also, its free cash flow rose 58.3% year-over-year to $581 million.
Analysts expect OC’s EPS for the quarter ending December 31, 2023, to increase 12.5% year-over-year to $2.80. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 42.3% to close the last trading session at $121.49.
OC’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the same industry, it is ranked #5. It has an A grade for Momentum and a B for Growth, Value, and Quality. To see the other ratings of OC for Stability and Sentiment, click here.
Stock #1: CRH plc (CRH)
Headquartered in Dublin, Ireland, CRH manufactures and distributes building materials in Ireland and internationally. It operates through three segments: Americas Materials, Europe Materials, and Building Products. The company manufactures and supplies cement, lime, aggregates, precast, ready mixed concrete, and asphalt products; concrete masonry and hardscape products comprising pavers, kerbs, retaining walls, and related patio products.
On July 26, 2023, CRH’s subsidiary Oldcastle Infrastructure announced that it had acquired Hydro International. The strategic addition of Hydro to Oldcastle Infrastructure’s water management enables the company to fulfill its vision of being a leading provider of solutions in the circular water economy.
The acquisition enhances Oldcastle’s water treatment solutions offering, bringing product breadth, market expertise, and well-developed R&D capabilities.
In terms of the trailing-12-month EBIT margin, CRH’s 12.32% is 5.7% higher than the 11.65% industry average. Likewise, its 7.80% trailing-12-month levered FCF margin is 88.7% higher than the industry average of 4.13%. Its 8.63% trailing-12-month net income margin is 46.7% higher than the industry average of 5.88%.
For six months ended June 30, 2023, CRH’s sales revenue rose 7.6% year-over-year to $16.14 billion. Its EBITDA increased 14% over the prior-year period to $2.52 billion. The company’s group operating profit rose 17.5% year-over-year to $1.63 billion. Also, its EPS from continuing operations came in at $1.57. In addition, its operating cash flow increased 60.7% year-over-year to $998 million.
Street expects CRH’s revenue for fiscal 2023 to increase 8.2% year-over-year to $35.17 billion. Its EPS for fiscal 2024 is expected to increase 9.4% year-over-year to $4.83. Over the past month, the stock has gained 2.7% to close the last trading session at $58.12.
CRH’s 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 is ranked #2 in the Industrial – Building Materials industry. It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. Click here to see the other ratings of CRH for Growth and Value.
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CRH shares fell $0.48 (-0.83%) in premarket trading Wednesday. Year-to-date, CRH has gained 48.49%, versus a 15.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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