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Shares of Vulcan Materials to continue growth trend

I remain upbeat about the shares of Vulcan Materials, one of the US largest producers of construction aggregates, concrete and asphalt. The company consistently delivered strong performance in 2015 and is poised to gain further momentum in 2016, I believe, as public construction activity picks up traction.

The company ended 2015 on a positive note – both revenues and earnings were significantly up y-o-y and surpassed consensus estimates in the fourth quarter. After severe wet weather disrupted shipments in the first half of 2015, volumes picked up in the latter half backed by increasing demand from construction activities across the markets served by the company. Moreover, pricing momentum remained robust, which translated into expanding profit margins.

The company expects overall demand growth in Vulcan-served markets to be approximately 7% in 2016, supported by continued growth in both private and public construction. In particular, demand in the public sector is expected to rise approximately 5%. A multi-year highway bill – five-year, USD 305 bn FAST Act – was enacted in Dec 2015, which increased the funding certainty for state transportation and highway programs. This, coupled with state initiatives to finance infrastructure projects, should boost aggregate-intensive construction infrastructure activity in 2016 thereby increasing aggregates demand.

Vulcan forecasts 2016 adjusted EBITDA in the range of $1-1.1 bn compared with $836 mn in 2015. The profitability is expected to be driven by improvement in gross profit per ton at the Aggregates segment, higher earnings at the non-aggregates segments, and lower costs.

Vulcan’s shares are trading above the $105 support level. The stock, in me opinion, is well positioned to continue growth, with medium-term target price at $115.