Infrastructure forms the backbone of the global economy, from the roads we drive on to the systems that deliver our energy and data. Substantial government funding flows into projects for roads, bridges, utilities, and energy, and infrastructure stocks are set to benefit from these investments, offering promising prospects for investors.
Given this backdrop, it could be wise to invest in fundamentally strong infrastructure stocks Heidelberg Materials AG (HDELY), Owens Corning (OC), and Griffon Corporation (GFF), which have earned a ‘Strong Buy’ rating in our proprietary rating system.
The global economy is at a crucial juncture, facing both socio-economic challenges and the pressing need for sustainable solutions. The shift towards clean energy and smart infrastructure is gaining momentum, with significant investments being channeled into renewable energy projects and advanced infrastructure technologies. This includes initiatives to improve transportation systems, enhance energy efficiency, and create smarter, more resilient cities.
Forecasts suggest that the infrastructure sector will expand from $2.72 trillion in 2024 to $3.69 trillion by 2029, while the smart infrastructure market is expected to nearly double (growing at a CAGR of 18%) in the same period.
Additionally, the Biden-Harris Administration has recently unveiled $1.8 billion in infrastructure grants to boost road safety, rejuvenate communities, and stimulate economic growth across all 50 states, four territories, and the District of Columbia.
Furthermore, investors’ interest in infrastructure stocks is evident from the iShares U.S. Infrastructure ETF’s (IFRA) 26.4% returns over the past nine months and 11.1% year-to-date.
Considering these factors, let’s evaluate the three Industrial - Building Materials picks, beginning with the third choice.
Stock #3: Griffon Corporation (GFF)
GFF is a diversified management and holding company operating through its wholly-owned subsidiaries. The company provides consumer, professional, and home and building products across the United States, Europe, Canada, Australia, and other international markets. It operates in two segments: Home and Building Products and Consumer and Professional Products.
On July 1, GFF announced that its subsidiary, The AMES Companies, Inc., acquired Pope, a leading Australian provider of residential watering products, from The Toro Company (TTC). This acquisition, the seventh for AMES in Australia since 2013, further enhances AMES’s product portfolio in the Australian market. Pope is expected to generate approximately $25 million in annual revenue and positively impact GFF’s earnings in the first full year of ownership.
With 12 years of consecutive dividend growth, GFF pays an annual dividend of $0.60 per share, which translates to a yield of 0.87% on the current share price. The company’s dividend payouts have grown at a 22.2% CAGR over the past three years. On June 20, it paid a quarterly dividend of $0.15 per share.
For its fiscal second quarter, which ended March 31, 2024, GFF’s net revenues amounted to $672.88 million, while its gross profit increased 39.2% year-over-year to $270.66 million. The company’s net income for the quarter stood at $64.14 million, compared to a net loss of $62.26 million. GFF’s adjusted earnings per share grew 11.6% from the prior-year quarter to $1.35.
In addition, its net cash flow from operating activities rose 15% from the year-ago value to $185.86 million. As of March 31, 2024, its cash and cash equivalents increased to $123.03 million from $102.89 million recorded on September 30, 2023.
Analysts expect GFF’s revenue for the third quarter (ended June 2024) to increase marginally year-over-year to $688.94 million, while its EPS for the same quarter is expected to grow 1.9% from the prior year to $1.31.
The stock has gained 78.3% over the past nine months and 65.4% over the past year to close the last trading session at $69.05.
GFF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
GFF has a B grade for Growth, Value, Momentum, and Quality. It is ranked #5 out of 47 stocks in the B-rated Industrial - Building Materials industry. Click here to access the other GFF ratings for Stability and Sentiment.
Stock #2: Heidelberg Materials AG (HDELY)
Headquartered in Heidelberg, Germany, HDELY produces and distributes cement, aggregates, ready-mixed concrete, and asphalt globally. The company offers cement products, natural stone aggregates, crushed aggregates, and ready-mixed concrete for use in the construction of tunnels, bridges, office buildings, and schools.
On July 16, HDELY announced an agreement to acquire Highway Materials, Inc., a major aggregates and asphalt producer in Greater Philadelphia. The acquisition includes four crushed stone quarries, nine hot-mix asphalt plants, two clean-fill operations, a concrete recycling facility, a construction services business, and more than 350 employees.
Earlier in the month, the company also expanded its reach in Texas by acquiring Victory Rock, a high-quality aggregates producer, and Aaron Materials, a well-known concrete recycler and materials producer. These acquisitions enhance the company’s existing footprints in two core U.S. markets while strengthening its focus on recycling.
In the first quarter that ended on March 31, 2023, HDELY reported a revenue of €4.49 billion ($4.88 billion). The company’s result from current operations before depreciation and amortisation (RCOBD) came in at €542 million ($589.68 million), reflecting a margin of 12.1% (up by 71bps from the prior year). Its result from current operations (RCO) amounted to €232 million ($252.41 million), with a margin of 5.2%.
Street expects HDELY’s revenue and EPS for the year ending December 31, 2024, to increase 2.4% and 7.7% year-over-year to $23.48 billion and $2.43, respectively. Over the past year, the stock has gained 35.4% to close the last trading session at $21.82.
It’s no surprise that HDELY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Momentum and Stability. It is ranked #4 out of 47 stocks in the same industry.
Beyond what is stated above, we’ve also rated HDELY for Growth, Sentiment, and Quality. Get all HDELY ratings here.
Stock #1: Owens Corning (OC)
OC is a global manufacturer and seller of building and construction materials. It operates through three segments: Roofing; Insulation; and Composites. Its product offerings include laminate and strip asphalt roofing shingles, oxidized asphalt materials, various roofing components used in residential and commercial construction, and specialty applications.
On June 20, OC’s Board of Directors declared a quarterly dividend of $0.60 per common share. The dividend will be payable on August 2, 2024, to shareholders of record as of July 15, 2024.
OC pays an annual dividend of $2.40, which translates to a yield of 1.39% at the current share price. Its four-year average dividend yield is 1.37%. Moreover, the company’s dividend payouts have increased at a CAGR of 31.5% over the past three years.
On May 15, OC acquired Masonite International Corporation, a leading global provider of interior and exterior doors and door systems. OC acquired all outstanding Masonite common shares for $133 per share, resulting in an implied transaction value of approximately $3.9 billion. The acquisition marked a significant milestone for Owens, strengthening its position as a market leader in building and construction materials.
For the first quarter that ended March 31, 2024, OC reported net sales of $2.30 billion. The company’s adjusted EBITDA increased 16% from the year-ago value to $565 million. Its adjusted earnings attributable to OC came in at $316 million and $3.59 per share, up 22.9% and 28.2% year-over-year, respectively.
Moreover, the company’s operating cash flow was $24 million, compared to an outflow of $164 million during the prior year’s quarter.
The consensus revenue estimate of $2.92 billion for the fiscal second quarter (ended June 2024) represents a 14.1% increase year-over-year. The consensus EPS estimate of $4.35 for the about-to-be-reported quarter indicates a 12.9% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, OC shares have gained 40.7%, closing the last trading session at $172.78.
OC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Momentum, Sentiment, and Quality. Within the same B-rated Industrial – Building Materials industry, OC is ranked #2. Click here to access additional ratings for OC (Growth and Stability).
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HDELY shares were trading at $22.21 per share on Monday afternoon, up $0.39 (+1.79%). Year-to-date, HDELY has gained 27.07%, versus a 17.42% 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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