Why Morgan Stanley Likes Martin Marietta Materials

While fiscal 2021 may be impacted by weakness in the non-residential construction segment and muted Infrastructure spend, Martin Marietta Materials, Inc. MLM, Vulcan Materials Company VMC and Summit Materials Inc SUM are likely to witness robust tailwinds in fiscal 2022 and beyond, according to Morgan Stanley.

The Machinery Analyst: Courtney Yakavonis initiated coverage of Martin Marietta Materials with an Overweight rating and a price target of $316.

She also initiated coverage of Vulcan Materials and Summit Materials with Equal-Weight ratings and price targets of $150 and $22, respectively.

The Machinery Thesis: Although aggregates have among the strongest business models within the machinery segment, they serve a highly cyclical construction end market, Yakavonis said.

“While the outlook for Resi construction is bright headed into FY21, we believe the remaining 75-85% of Aggregate companies' Non Resi and Infrastructure related exposure is at risk in the through FY21. Pricing should offset most of these anticipated volume declines, but upside is limited in the short term,” she wrote in a note.

The analyst noted that aggregates stocks had underperformed the market, down 1% year to date, and may outperform only after there are “tangible signs of a Non-Resi or Infrastructure recovery.”

“We prefer Martin Marietta (MLM) over peers due to its better state-level outlook, stronger pricing power, and potential for a re-rating,” Yakavonis added.