Biden infrastructure plan means upside for two materials stocks, Jefferies says

Published Fri, Jun 25 20212:22 PM EDTUpdated Fri, Jun 25 20212:32 PM EDT

An infrastructure agreement between the Biden administration and a bipartisan group of senators represents a "big step forward" and a positive for two materials companies, according to Jefferies. Gravel supplier Martin Marietta Materials and cement maker Vulcan Materials should each see a pickup in sales if some version of a physical infrastructure bill is passed, analyst Philip Ng said on Friday. Jefferies upgraded both stocks to buy ratings and hiked its price targets on both materials firms. With the market wary about "peak earnings for cyclicals, we believe MLM & VMC are positioned to outperform from a potential infrastructure bill & recovery in" nonresidential construction, Ng wrote in a note. After weeks of negotiation, the White House and a centrist group of senators announced Thursday that they agreed upon a policy framework for a physical infrastructure bill. The plan would spend $973 billion over five years, and $1.2 trillion if continued over eight years, on a package that would fund improvements to roads, bridges, and airports, as well as bolstered construction for waterways, electric vehicles and broadband. While the details of the plan are subject to change, early estimates of the infrastructure bill's spending include a $109 billion increase for roads and bridges. That kind of expenditure, spread over five to eight years, could increase materials industry demand by 5% to 8% annually over that time period, Jefferies said. Analyst Ng added that the equity of Vulcan and Martin Marietta looks especially attractive relative to other materials companies given their exposure to nonresidential construction. The nonresidential industry "is showing green shoots, with MLM noting bidding activity & pricing inquiries for light commercial were picking up," he wrote. "With 34-40% of MLM & VMC's sales in nonres, they have great leverage to a recovery in commercial and could provide upside in 2H21 / 2022." Both stocks have already posted strong returns for 2021 as the U.S. economy climbs its way out of the Covid-19 pandemic: Vulcan is up 19.3% and Martin Marietta has gained 26.7% since January. Still, Jefferies sees more upside ahead with a price target of $424 a share for Martin Marietta and $207 a share for Vulcan. Those two price targets imply upside of 18% for each stock from Thur