We came across a bullish thesis on Martin Marietta Materials, Inc. (MLM) on Durable Value Creators’ Substack by Durable Value Creators. In this article, we will summarize the bulls’ thesis on MLM. MLM Technologies, Inc. share was trading at $546.29 as of Sept 20th. MLM’s trailing and forward P/E were 16.44 and 24.51 according to Yahoo Finance.
Martin Marietta Materials (MLM) could be a compelling investment as it is in an industry that will be there in the long term as long as roads, bridges, and buildings are being constructed as it is transforming itself to focus on higher quality and higher margin business.
MLM is a leading provider of raw materials required for infrastructure development offers products such as crushed stone, sand, gravel, ready-mixed concrete, and specialized cement which is called the aggregates segment across the United States. This aggregates segment makes up two-thirds of the company’s sales while it generates nearly 80% of its gross profit. It is expected that revenue will grow by approximately 10% annually due to the ongoing infrastructure investments and increased residential construction activity. The company’s EBITDA margin stands at about 20%, with EBITDA expected to grow significantly due to operational efficiencies and strategic acquisitions.
MLM’s products that is the aggregates cannot be substituted for large-scale construction due to their high weight, low cost, and the substantial quantities required. For example, constructing one lane mile of interstate highway demands an average of 38,000 tons of aggregates, while a typical home requires 400 tons. Despite being a crucial component, aggregates account for only a small fraction of overall project costs—approximately 10% for roads, 5% for commercial projects, and 2% for homes. This characteristic ensures steady demand as construction activities persist.
The company caters to markets that have minimal competition and thus is often operating as the sole or one of two viable suppliers in a region. This kind of market structure in a region gives strong pricing power to MLM helping it enhance its profitability. The company has been proactively reshaping its portfolio, divesting less competitive assets in the cement and ready-mixed concrete segments such as the operations in California and Texas while focusing on expanding its aggregates operations by acquiring acquisition of aggregates producer Albert Frei & Sons and several southeastern U.S. facilities.
Martin Marietta has been trading at an attractive valuation when compared to its peer Vulcan Material, with a forward P/E ratio of approximately 20x and an EV/EBITDA multiple of around 12x. The operational changes and the shifting in the focus MLM is going through by concentrating on aggregates, expanding its footprint in fast-growing economic regions is expected to create value in the long term, thus suggesting a strong upside potential.
Martin Marietta Materials, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 79 hedge fund portfolios held MLM at the end of the second quarter which was 77 in the previous quarter. While we acknowledge the risk and potential of MLM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MLM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.