Vulcan Materials: A Good Buy/Takeover

Vulcan (VMC) is an interesting company that has more or less returned to its roots by focusing on cornerstone building materials. Founded in 1909, VMC, based in Birmingham, AL, with strategic locations nationwide and in Mexico (serving Houston, New Orleans and Tampa) provides infrastructure materials that are required by the American economy. Vulcan is the nation's largest producer of construction aggregates, a major producer of other construction materials including asphalt and ready-mixed concrete and a leading producer of cement in Florida.

VMC produces aggregates, primarily crushed stone and gravel, that are used in nearly all forms of construction. In particular, large quantities of aggregates are used to build roads and nonresidential properties.

Vulcan has had a trading range of $49.39-$100.71 over the past 52 weeks. Presently it sits at $64.19. Sporting a dividend of 3.05%, this $7B company has been trading more heavily in recent weeks. The stock has become a more price fluctuating security since joining the S&P500 - and since foreign companies have been buying aggregate companies in the U.S. due to the cheap dollar and national infrastructure needs that must be addressed. High commodity costs have hurt the stock price. Cutbacks in state and local spending on infrastructure - especially roads - have also taken their toll.

It is my belief that Vulcan shares are significantly under priced going into the upcoming tax and spend cycle. This is certainly not going unnoticed across the ponds (west and east). VMC could find itself receiving a hefty offer from foreign buyers with a keen eye for value. I price a takeover of Vulcan at approximately $85-90/share based upon the outstanding business model and the reputation of Vulcan for delivering vital materials in a timely, cost effective manner. Yes, there is value in "them thar" rocks.

Vulcan is a company that has compiled a rich history as an American success story, founded by an attorney from Ohio who saw value in southern slag. VMC should be receiving your attention as an addition to the materials sector of your portfolio, perhaps before they receive an offer that cannot be refused.

Comments

[skwestorange:]

Dreaming? What is the catalyst? That much hyped second stimulus that some think is going to be for infrastructure spending? Even if that come through, say sometime next year, wonder how long (a few years) will it be before real dollars get spent on real projects leading to a big demand for aggregates. Over what time frame (5 to 10 years perhaps)?

2008 Aug 01 04:57 PM

[The Hammer:]

Pretty poor article on valuation metrics and justification for a $85-90 share price.
What about all those state budget deficits? How will this impact infrastructure spending?

2008 Aug 05 02:04 PM

[littlemisss...:]

I guess this is an article based on hope and a dream. VMC trades at ~30x P/E based on management guidance for 2008 ($2.71 - ex spl items). The only real acquirer out there for this company is Holcim. Holcim is trading at 8x-9x P/E other long shot acquirers are trading for far lower P/E than VMC. The "potential" acquirers in Europe are suffering too with troubles in Europe. Prospects for VMC in near-medium term are dim. Non residential const. is starting to turn down and state budgets are getting squeezed. The miles driven by americans has gone down meaningfully in the last year cutting down the state and federal highway funds funded by gasoline tax. This stock has poor earnings prospect in the near and medium term. Acquisitions propects are tough given the position of potential acquirers and the tough credit markets. I am shorting this stock

2008 Aug 21 11:37 PM