In an earlier report on publicly traded construction companies that could benefit from the infrastructure plans laid out by Joe Biden, the all-but anointed Democratic candidate for U.S. president, we focused on engineering, procurement and construction firms. In this installment, we want to look at a number of companies that provide the materials that construction companies use to build roads, bridges and buildings.
In late July, Biden released an updated plan for infrastructure and clean energy projects that committed to spending $2 trillion over four years to put the United States “on an irreversible course to meet the ambitious climate progress that science demands.” The projects included in the Biden plan do not have price tags attached, but meaningful investments in infrastructure, the auto industry, mass transit, electric utilities, housing and buildings, agriculture and conservation, research and development, and environmental justice won’t come cheap.
In 2017, the American Society of Civil Engineers (ASCE) released its quadrennial infrastructure “report card” that established the country’s needed infrastructure investment at $4.6 trillion over the 10-year period between 2016 and 2025. The report card included $2 trillion in upgrades to surface transportation, more than $900 billion in the U.S. power generation and transmission system, and $870 billion in upgrading the nation’s schools. The gap between available funding and total funding needed was nearly $2.1 trillion.
A fair share of the work will go to smaller, privately held companies that supply materials and skilled labor to make all these projects work. But larger publicly traded companies will supply a lot of materials and a lot of project management expertise.
Of the six largest materials firms, two are based in Europe and five trade on major U.S. exchanges. The two European firms are also the largest.
Looking at potential outcomes of a Biden presidency by themselves ignores many variables that could improve or weigh down the business effects on a sector. Tax changes, for example, could lower after-tax net income, regulation costs and industry practice changes can increase operating expenses, and changes to employment laws also could come into play. While it may be easy to see an opportunity for some companies, it’s hard to predict what the eventual result will be.
Though headquartered in Dublin, Ireland, CRH PLC (NYSE: CRH) has operations in both Europe and the Americas. The company’s market cap is around $31 billion, and it employs nearly 29,000 people at more than 1,400 locations in the United States, Canada and Brazil. CRH supplies aggregates, asphalt, ready-mixed concrete, cement, paving and construction services across North America.
According to the U.S. Environmental Protection Agency, making cement is the third-largest source of industrial pollution, emitting more than half a million tons annually of sulfur dioxide, nitrogen oxide and carbon dioxide. Using cement to make concrete raises the environmental impact significantly because, next to water, concrete is the most widely used substance on Earth. According to a report in The Guardian, “If the cement industry were a country, it would be the third-largest carbon dioxide emitter in the world with up to 2.8bn tonnes, surpassed only by China and the US.”
If Biden does become president and is serious about mitigating climate change, he will have to contend with the pluses and minuses of concrete.
CRH stock closed at $39.13 on Tuesday, in a 52-week range of $17.73 to $40.88. The stock trades about 3% below its 52-week high and higher than its consensus price target of $36.31. Shares trade at a multiple of around 17 times expected 2021 earnings.
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