These construction materials stocks will rally on Trump’s infrastructure plan, Citi says

Published Wed, Mar 29 201712:11 PM EDT

Citi Research initiated coverage of Martin Marietta Materials and Vulcan Materials with buy ratings, saying the companies will benefit from increased government infrastructure spending in the coming years. President Donald Trump will try to pass tax reform and an infrastructure spending package at the same time this year, according to a report from Axios on Tuesday. "We think that both Vulcan and Martin present strong investment opportunities at current price levels," analyst Scott Schrier wrote in a note to clients Wednesday. "Martin and Vulcan both give investors exposure to [a] similar theme: economic growth from construction spending that's highlighted by infrastructure and transportation. Both companies … stand to reap significant rewards from the FAST Act, various state and local initiatives, large energy and industrial construction, and housing and related commercial activity." Schrier's price targets for Martin Marietta Materials and Vulcan Materials are $245 and $140, respectively, representing 17 percent upside and 22 percent upside. The analyst cited how public infrastructure spending was 47 percent of Vulcan Materials sales and 39 percent of Martin Marietta Materials sales last year. He said government infrastructure spending will grow 3 to 5 percent in the next few years versus the historical average of 2 percent. "The elevated spending can be attributed to the FAST Act as well as state and local initiatives to fund infrastructure spending," he wrote. "With the nation's infrastructure aging, we expect U.S. infrastructure spending to grow over the long term, but at a moderate pace." As a result, Schrier predicts both materials companies will be able to meet their 5 percent shipment growth guidance for 2017. "It's important to point out that our investment thesis and modeling assumptions do not incorporate any incremental funding stemming from a Trump infrastructure plan (including the Senate Democrat's $1T proposal) and we view any legislation as more upside that could prolong the cycle," he wrote. — CNBC's Michael Bloom contributed to this story.

A contractor moves steel rebar while working on the construction site in New York.

Victor J. Blue | Bloomberg | Getty Images

President Donald Trump will try to pass tax reform and an infrastructure spending package at the same time this year, according to a report from Axios on Tuesday.

"We think that both Vulcan and Martin present strong investment opportunities at current price levels," analyst Scott Schrier wrote in a note to clients Wednesday. "Martin and Vulcan both give investors exposure to [a] similar theme: economic growth from construction spending that's highlighted by infrastructure and transportation. Both companies … stand to reap significant rewards from the FAST Act, various state and local initiatives, large energy and industrial construction, and housing and related commercial activity."