We're Nudging Up Our Price Target for This Holding

We are nudging our price target for Vulcan Materials VMC to $310 from $300 following the company’s December quarter results and prospects for continued margin improvement that should drive continued EPS growth in the coming quarters.

The driver behind that margin expansion continues to be favorable pricing, which was reflected in the double-digit improvement in freight-adjusted sales price per ton and gross profit per ton in the December quarter.

In the December quarter that culminated in adjusted EBITDA margins of 29.7% compared to 26.0% in the year-ago quarter, delivering EPS of $2.17 versus $1.46 in the year-ago quarter and the market forecast of $1.72. That margin expansion was the primary driver of EPS growth, not the modest year-over-year increase in volume. For the coming year, Vulcan sees a third consecutive year of double-digit year-over-year growth in the Aggregates segment, cash gross profit, and a more substantial increase in the Total Asphalt and Concrete segments, cash gross profit. We see that translating into further margin expansion and EPS growth.

In Friday’s Roundup, we shared with you that public highway, pavement and street construction is expected to continue to grow 8% in 2025 to $128.4 billion. That, along with continued demand improvement tied to non-residential construction, should more than offset what Vulcan sees as a subdued housing market this year. That also explains the favorable pricing outlook for 2025.

On the earnings call, Vulcan Chairman and CEO J. Thomas Hill shared his view on the housing market: “The timing of additional interest rate reductions and overall improvement in affordability will dictate when residential construction activity returns to growth.”

Should we see a rebound in the housing market sooner than expected, that would be gravy for Vulcan’s business and the shares.

On the earnings call, management also conceded that January and February winter weather means this year is off to a slow start, but let’s remember the bulk of Vulcan’s sales and profits are generated in the June and September quarters. Last year, those quarters were plagued by wetter-than-usual weather, and we’ll be on the lookout for signs of a repeat this year, and what that may mean for Vulcan’s business and the shares.

Because of the pullback we are seeing in the shares, which we would argue is more market-driven than company-specific, we will maintain our One rating on VMC shares. We do see nice support at the 200-day moving average ($259.17), but we also see resistance between $267 to $269. This means the likely catalyst to drive VMC shares meaningfully higher will us moving past the winter season, and that means either the March or April Construction Spending Report. In the meantime, we’ll continue to monitor other indicators of non-residential construction activity.

Two Cents on United Rentals Walking Away from H&E Acquisition

A few weeks ago, United Rentals URI announced it would acquire H&E Equipment Services HEES for $92 per share with the deal to close later this quarter.

We opted not to adjust our URI price target, preferring instead to wait for more transaction details to be shared, including synergies and savings. With the benefit of hindsight, the decision to wait was a good one because on Tuesday, Herc Holdings HRI announced it would acquire H&E for $104.89 per share.

Alongside that news, United Rentals shared that it would not submit a revised bid, a move that speaks to the management team being disciplined in its deal-making. We like that quite a bit. Acquisitions can be challenging for even a seasoned management team to integrate, and a bidding war tends to raise the payback time and other hurdle rates for the deal. The equipment rental market is still a fragmented one, and that means United is already back on the hunt.

On top of pocketing a $63.5 million termination fee from H&E, United also shared it has jumpstarted its share repurchase program. As of Tuesday, it had approximately $250 million remaining on its existing $1.5 billion share repurchase program.

Some folks on Wall Street did jump the gun and lift their URI price targets to include H&E, and that explains some of the dip we’re seeing in the shares. However, as we discussed in our write-up for Eaton’s ETN latest quarterly results, the outlook for construction mega projects is significant. That keeps us bullish on URI shares, but as we discussed above with VMC shares, we may need to get past winter weather for the shares to shine once again.

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At the time of publication, TheStreet Pro Portfolio was long VMC, URI and ETN.