By:
Holly Kuffel, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• U.S. Concrete, Inc. (NASDAQ:USCR) produces and distributes
ready-mix concrete, aggregates and other concrete-related products and services
primarily to the United States construction industry. The company operates
through two segments: Ready-Mixed Concrete (93.3% of total revenue) and
Aggregate Products (6.7%).
• The Ready-Mixed
Concrete segment formulates, prepares and delivers customer-specific concrete
solutions to customers’ job sites in addition to providing on-site services,
and the Aggregate Products segment offers crushed stone, gravel and sand for
use in commercial, industrial and public works projects.
• Demand is driven
primarily by the construction industry (55%-60% of concrete revenue) and the residential
housing markets (25%-30%).
• USCR thrives off
successful acquisitions and management alludes to several potential acquisition
and expansion plans outside of their three largest market positions: New York,
California and Texas.
Key
points:
U.S. Concrete has secured
its position in the AIM Domestic Small Cap portfolio. AIM’s original
recommendation from September 2016 consisted of drivers regarding continual
growth in market share, rising construction spending and high success with
acquisitions. U.S. Concrete remains aligned with these drivers, and with an extremely
impressive LTM of price performance, USCR solidified its position as the
leading U.S. producer and distributor of ready-mixed concrete. USCR recently exceeded
AIM’s initial price target of $66.37, but there are still high expectations for
demand in upcoming years.
In April 2017, USCR
completed their latest acquisition of New Jersey’s Corbett Aggregates Company
and gained access to 401 acres of land and over 35 million tons of aggregate
reserves. This acquisition plays a fundamental role in USCR’s strategy for
vertical integration and gives a sense of self-sufficiency in the aggregates
market, especially where resources like natural sand are quickly depleting.
As
a result of over 17 acquisitions since 2010, USBR has grown over 80% and management
anticipates continual growth and profit recognition. As USCR realizes
considerable cash flows, they utilize their cash to pay off debts and scout out
new investments. In USCR’s 1Q17 earnings report, management alluded to a
pipeline of acquisition opportunities in both segments and expansion into new
metropolitan areas in order to further vertical integration.
Demand continues to
thrive from large construction projects in metropolitan areas, in addition to
the growing housing market. USCR is continuing to realize profits from Obama’s
highway bill, which extends through 2020. Following Trump’s presidency, the
company’s price rose over 40% from acquisitions and demand. Yet, there is high
speculation regarding the potential “Trump wall,” in which USCR would be the primary
concrete supplier.
What
has the stock done lately?
Share prices struggled
throughout March 2017 when USCR’s audit committee replaced Grant Thornton with
Ernst & Young after recognizing material weaknesses regarding accuracy and
completion of tax accounts. Additionally, on March 24, 2017, CFO and Senior VP
Jody Tusa, Jr. resigned for personal reasons and is expected to take effect
July 1, 2017. This announcement alone resulted in an 8.85% plunge in stock
prices. Despite their rocky start to 2017,
USCR released 1Q17 results on May 4,
2017, resulting in a 14.3% increase in price from $61.90 to $70.75 after
exceeding growth expectations and capitalizing on strong demand for concrete.
Looking forward, demand for ready-mix concrete is expected to have a strong economic
outlook.
Past
Year Performance: In the past 12 months, USCR has increased
12.8% from $62.83 to $70.85. Since the initial pitch in September 2016 at a
price of $48.34, USCR has experienced significant upward momentum. USCR
increased prices by about 6% over the prior year due to strong demand, selling
approximately 8.1 million cubic yards of ready-mixed concrete and approximately
5.6 million tons of aggregates. USCR also completed six acquisitions, four of
which are concrete producers in New York. Not only did this solidify USCR’s #1
position in the market, but it reflected greatly on their earnings statements during
the last four quarters.
1 Year Stock Chart vs. Benchmark
Source:
FactSet
My
Takeaway
Continual growth and
expansion through acquisitions continues to benefit USCR and enhance their
large market share. Although the company has reached its 52-week high, it
continues to exceed quarterly expectations and take on significant construction
projects. USCR has positioned itself well for the continuous rise in demand for
concrete and aggregates and will generate healthy cash flows over upcoming
years that can be utilized for further investments.
1 Month Stock Chart
Source:
FactSet
