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Arcosa, Inc.: A Low Leverage Bet On America's Infrastructure

Jun. 08, 2020 3:50 PM ETArcosa, Inc. (ACA)TRN2 Comments
The Stock Dudar profile picture
The Stock Dudar


  • ACA is well positioned to take advantage of any stimulus that could be passed to lower unemployment.
  • Its low leverage and strong sales growth give it room to run.
  • I'm bullish long term, but I'm waiting for a pullback to the $35 level.

Arcosa, Inc. (NYSE:ACA) Overview

A late 2018 spin-off of Trinity Industries (TRN), the Arcosa split created two purer play companies with TRN focused on railroads, while Arcosa focuses on construction and shipping. In their short time as an independent company, ACA has achieved impressive sales growth both organically and through prudent acquisitions largely funded with cash from operations. Each of their segments has been classified as essential, but they are certainly not immune to the cyclicality of the construction business. Both CEO Antonio Carrillo and CFO Scott Beasley have held these roles since the spin-off and were senior members of Trinity Industries prior to the separation.

Business Dynamics & Financials

ACA operates in three segments - construction products, energy equipment, and transportation products.

Construction Energy Transportation
Q1 '20 Revenue $149.4M $223.2M $117.0M
Y/Y Rev Change 41% 7% 20%
Q1 '20 EBITDA $32.1M $35.2M $18.7M
Y/Y EBITDA Change 49% -5% 55%

Source: ACA 1Q20 Earnings Slides

Construction Products - While growth in the construction products segment appears impressive, most of it was non-organic as the Cherry acquisition added roughly $44M to sales and $9M of EBITDA to the aggregates and specialty materials sub-group. At a purchase price just under $300M, 10x EBITDA seems reasonable given the expected growth in the Texas market. Furthermore, the acquisition was funded through debt, $250M at LIBOR+1.5% (currently ~2.5% after COVID-19 induced drop), and $100M at 4%. In the current interest rate environment, this was a smart investment paying under 4% interest while earning close to 10% especially given the potential for growth in the investment and a low leverage balance sheet at 0.5 Net Debt to EBITDA. Expect this segment to experience some weakness in 2Q, potentially 3Q, as COVID-19 will be a near-term headwind as spending drops, potentially offset in the medium/long term by any infrastructure spending by the government to kick-start the economy. Mr. Carrillo offered some guidance "we started the second quarter pretty strong. We're not

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The Stock Dudar profile picture
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Comments (2)

jamiemacph profile picture
Thanks for the write up! Under followed stock imo, particularly during this streak for industrials. I bought into ACA in October ‘19 with a similar thought pattern (minus Cherry acquisition which hadn’t happened yet) and have been quite pleased with execution since
A Pragmatic Investor profile picture
You maybe waiting a while for that pullback.
As you noted, it is moving without any serious infrastructure talk.
I own through the Trinity spin-off, it has not been super exciting ... but did not expect it to be.
At this rate of movement, it will hit $50 before your target price.
For me it is a hold, others will have to wait.

Long ACA.
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