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Hopes for an infrastructure spending spree in California lift Vulcan Materials shares

A worker repaves a road on Encino Drive in Oak View, California.
Visions of America | UIG | Getty Images
A worker repaves a road on Encino Drive in Oak View, California.

Shares of Vulcan Materials rose 3 percent Wednesday on expectations for increased highway and repair spending in California.

Vulcan, one of the nation's largest producers of construction aggregates, could benefit from California roadwork funding, according to a research note Wednesday from SunTrust Robinson Humphrey analyst Rohit Seth.

Late Wednesday, California Gov. Jerry Brown and leaders from the state legislature announced what the governor's office termed "a landmark transportation investment to fix our roads, freeways and bridges in communities across California and put more dollars toward transit and safety." The legislation is expected to be voted on by April 6.

A press release issued by Brown's office said the "$5 billion-a-year program will cost most drivers less than $10 a month and comes with strict new accountability provisions to ensure funds can only be spent on transportation." Overall, the funding is expected to approach a whopping $52.4 billion over the next decade.

SunTrust said measures under consideration in California would raise highway funding well above previous levels.

Vulcan stock closed up $3.56, or 3.1 percent, at $118.16. In trading Wednesday, the stock touched as high as $118.78, before giving up some of its gains.

"We think the mounting backlog of needed highway and road repairs ups the urgency level in this state, particularly after heavy rainfall this quarter brought the issue to the forefront," said Seth. He estimates that California accounted for about 15 percent of Vulcan's total sales in 2016 and would be around 20 percent of revenue if not for reduced funding due to budget cuts

Also higher was aggregates supplier Martin Marietta Materials, which gained $4.35, or 2.1 percent, to $214.27.

Although Martin Marietta isn't a big player in the Golden State, having exited its cement business, it was mentioned along with Vulcan in a note from Citi on Wednesday that initiated "buy" ratings on the two stocks.

Citi suggested they both "present strong investment cases at current prices particularly after the [President Donald] Trump rally fade."

Citi analyst Scott Schrier added: "Martin and Vulcan suggested they will be more active in the
M&A market, and not rely solely on bolt-ons as they have over the last three years.
We think aggressive M&A demonstrates confidence that infrastructure will indeed elongate the cycle."

Watch: Trump's infrastructure package