Cemex vs. Vulcan Materials: Which Infrastructure Stock is a Better Buy?

Infrastructural activities almost came to a standstill last year due to the COVID-19 pandemic-related restrictions. However, the sector is witnessing a solid recovery with infrastructure-related activities such as repairing roads, bridges, and ports increasing significantly with the reopening of the economy, driving the near-term growth for companies in this space. 

This recovery should continue in 2022, in large part due to President Joe Biden signing a bipartisan infrastructure bill worth $550 billion on November 15th.  This has many investors looking to invest in infrastructure stocks.

Two that stand to benefit are CEMEX, S.A.B. de C.V. (CX) and Vulcan Materials Company (VMC).  Headquartered in Mexico, CX produces, markets, distributes, and sells cement, ready-mix concrete, aggregates, and clinker worldwide. VMC primarily produces and supplies construction aggregates in the U.S. It operates through four segments: Aggregates; Asphalt; Concrete; and Calcium.  Today’s I’ll analyze both stocks to determine which stock is currently a better buy.

CX has gained 2.5% over the past month, while VMC has returned 1.3%. However, VMC’s 38.1% gains year-to-date are significantly higher than CX’s 25.3% returns. Moreover, VMC is the clear winner with 46.7% gains versus CX’s 20.5% returns in terms of the past year’s performance.

Latest Developments

On December 16, 2021, CX and COBOD International announced the introduction of a 3D printing solution that utilizes conventional ready-mix concrete in the building process. Juan Romero, Executive Vice President of Sustainability, Commercial, and Operations Development of CX, said, “Our innovation efforts position us at the forefront of new technologies that contribute to building a better future.”

On August 26, 2021, VMC announced that it had acquired U.S. Concrete. Tom Hill, Chairman and CEO of VMC, said, "Today is an important milestone as we welcome U.S. Concrete and its talented team to Vulcan while also taking the next step forward in our growth and value creation strategy.”

Recent Financial Results

CX’s revenue increased 10% year-over-year to $3.77 billion for the fiscal third quarter ended September 30, 2021. The company’s operating EBITDA grew 2% year-over-year to $740 million, while its net loss came in at $377.97 million representing a 75% year-over-year decrease. Also, its loss of continued operations per ADS came in at $0.24, down 76% year-over-year.

VMC’s revenue increased 16% year-over-year to $1.52 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted EBITDA grew 4% year-over-year to $418 million. However, its net earnings came in at $176.90 million, representing an 11.5% year-over-year decrease. Also, its adjusted EPS from continuing operations came in at $1.54, down 1.3% year-over-year.

Past and Expected Financial Performance

CX’s revenue and EBIT grew at CAGRs of 1.2% and 10.8%, respectively, over the past three years. Analysts expect CX’s revenue to increase 7.7% for the quarter ending March 31, 2022, and 13.5% in fiscal 2021. The company’s EPS is expected to grow 813% for the quarter ending December 31, 2021, and 29.5% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 33.2% per annum over the next five years.

On the other hand, VMC’s revenue and EBIT grew at CAGRs of 6.2% and 8.9%, respectively, over the past three years. The company’s revenue is expected to increase 36.8% for the quarter ending March 31, 2022, and 14.3% in fiscal 2021. Its EPS is expected to grow 8.5% for the quarter ending December 31, 2021, and 29% in fiscal 2022. Also, VMC’s EPS is expected to grow at a rate of 19.2% per annum over the next five years.

Profitability

CX’s trailing-12-month revenue is 2.85 times what VMC generates. CX is also more profitable with a gross profit margin of 32.45% compared to VMC’s 25.86%.

Furthermore, CX’s ROA and ROTC of 5.35% and 7.29% are higher than VMC’s 4.55% and 5.54%, respectively.

Valuation

In terms of forward non-GAAP P/E, VMC is currently trading at 40.55x, 259.2% higher than CX’s 11.29x. Moreover, VMC’s forward EV/S ratio of 5.71x is 368% higher than CX’s 1.22x.

So, CX is relatively affordable here.

POWR Ratings

CX has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, VMC has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

CX has a B grade for Value, consistent with its forward non-GAAP PEG of 0.35x, 70.7% lower than the industry average of 1.21x. However, VMC has an F grade for Value, in sync with its forward non-GAAP PEG of 1.99x, 64.8% higher than the industry average of 1.21x.

Moreover, CX has a grade of B for Quality. This is justified given CX's 32.45% trailing-12-month gross profit margin, 6.4% higher than the industry average of 30.50%. On the other hand, VMC has a Quality grade of C, in sync with its 25.86% trailing-12-month gross profit margin, 15.2% lower than the industry average of 30.50%.

Of the 54 stocks in the B-rated Industrial - Building Materials industry, CX is ranked #14. In comparison, VMC is ranked #44.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Momentum, Stability, and Sentiment. Click here to view all the CX ratings. Also, get all the VMC ratings here.

The Winner

The infrastructure sector is witnessing a solid recovery with the reopening of economic activities. While both CX and VMC are expected to benefit, I believe CX is currently the better investment because of its lower valuation and higher profitability.

CX shares were trading at $6.63 per share on Tuesday afternoon, up $0.36 (+5.74%). Year-to-date, CX has gained 28.24%, versus a 24.89% rise in the benchmark S&P 500 index during the same period.

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.

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