If any company is going to benefit from the Biden infrastructure plan it’s U.S. Concrete (NASDAQ:USCR) and how it will impact cement stocks.
U.S. Concrete rolls out earnings the morning of May 6. Analysts expect a loss, 50 cents per share, on revenue of almost $308 million. The stock has been rising into the bad news, opening May 5 at about $66.70/share.
While the price-to-earnings ratio of 43 looks rich, the market capitalization of $1.12 billion is below annual sales for the cement company. Shares are up 66% so far in 2021.
Cement Stocks: Why They Like USCR
U.S. Concrete has been built over the last 20 years as a roll-up of smaller concrete companies.
U.S. Concrete is based in Euless Texas, the center of the Dallas-Fort Worth Metroplex. The company was forced into bankruptcy in 2010. It has made extensive acquisitions in the New York area, to the point where its website now features a nighttime shot of lower Manhattan.
Its most important recent deal, however is in the San Francisco Bay area, a terminal and storage facility in Stockton, California, that sets it up to supply road and bridge building supplies to the Golden State.
GuruFocus is currently down on U.S. Concrete, calling it significantly overvalued based on past multiples. That tells me small investors are piling in on the reopening trade and the prospects of an infrastructure bill.
Bad winter weather means the stock should easily clear its low earnings estimate, which it has been doing for some time. Zack’s expects it to lose 30 cents/share, which would be well ahead of the whisper number loss.
California operations put U.S. Concrete in the bullseye of environmentalists. This is not a bad thing. CEO Ronnie Pruitt has a quarter century of experience in the cement business. He told the most recent earnings call that the company is working to cut its carbon footprint by using recycled material and compressed natural gas.
A Green Field for Cement Stocks
Decades of low spending on infrastructure mean most analysts are still ignoring cement stocks.
Only two analysts at Tipranks are following U.S. Concrete and both see the stock heading down. Our Josh Enomoto recently profiled U.S. Concrete among seven different concrete players. The name makes it a favorite of retail investors, he writes, who have bid it up almost 275% over the last year.
U.S. Concrete’s past does make the recent rise look overdone. The company’s sales peaked in 2018 at $1.5 billion, and they’ve since gone down more than 10%. There’s $734 million of debt on the books, and there was hardly any cash at the end of last year.
What the bulls may be looking at is the potential for operating cash flow, which has been rising steadily and came to $181 million last year. Careful debt management means that net cash flow, even with all that debt, was $157 million.
The Bottom Line
The exuberance of retail investors means U.S. Concrete is an expensive name, given the nature of the industry.
But these investors have a point. U.S. Concrete should expect strong top-line growth later this year, and the company knows how to make a profit when growth comes.
The kind of infrastructure U.S. Concrete specializes in gets bipartisan support. If Biden’s American Jobs Act is split, as Washington insiders believe, the portion U.S. Concrete benefits from looks certain to gain quick passage.
This is one trade where the amateurs are out way ahead of the pros. While media attention is focused on fast-twitch plays like Gamestop (NYSE:GME), little guys with gray in their hair seem to be looking ahead to real business growth.
At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.