Following a turbulent start to the month, global financial markets have swiftly rebounded, driven by stronger-than-expected July retail sales and cooling consumer inflation data. Today’s economic news is adding to the good mood on Wall Street, with traders cheering a positive GDP revision and resilient jobs data. These encouraging indicators have eased earlier concerns of an economic slowdown, and sparked renewed optimism for a potential “soft landing.”
History shows that stocks tend to thrive when rate cuts coincide with solid economic growth rather than a downturn. And after Fed Chair Jerome Powell's dovish tone at Jackson Hole last week, interest rate cuts seem all but guaranteed next month.
Keeping these factors in mind, leading investment bank Morgan Stanley (MS) has spotlighted construction material company Summit Materials, Inc. (SUM), a Russell 2000 Index (RUT) component, as one top stock that’s poised to benefit from an expected soft landing scenario.
About Summit Materials Stock
Founded in 2009, Colorado-based Summit Materials, Inc. (SUM) is a major player in the construction materials industry, offering aggregates, cement, ready-mix concrete, and asphalt paving mix across the U.S. and western Canada. With its vertically integrated and geographically diverse approach, Summit serves a wide range of markets, including residential, nonresidential, and public infrastructure.
With over 80 acquisitions under its belt since its establishment, the company is committed to growth through strategic local partnerships while focusing on value creation and capital access. Valued at roughly $6.9 billion by market cap, shares of this construction material company have gained 6.7% over the past 52 weeks and 1.7% on a YTD basis.
From a valuation perspective, SUM appears to be priced attractively compared to its historical norms. The stock is trading at 23.36 times forward earnings, which is lower than its own five-year average of 25.91x.
Summit Materials Soars After Q2 Earnings
Following the company’s Q2 earnings results on Aug. 5, shares of Summit popped more than 3% the next day. Despite narrowly missing top-line estimates, net revenue for the quarter climbed 58.1% year over year to $1.1 billion, fueled by its materials and product segments' remarkable annual revenue growth of nearly 67.3%.
On the other hand, the company’s adjusted EPS of $0.66 managed to surpass Wall Street’s expectations by a 6.5% margin. Adjusted EBITDA for the quarter jumped 54.5% year over year to $296.2 million, driven by contributions from the Argos USA assets, ongoing pricing gains, and operational enhancements throughout the company.
As of June 29, Summit Materials held approximately $538.7 million in cash and had $2.8 billion in outstanding debt. Additionally, roughly $149 million remained for share buybacks under the company’s repurchase program.
Commenting on the Q2 performance, CEO Anne Noonan said, “We are pleased and proud to report that our teams safely and successfully managed through weather-related disruptions to deliver a strong quarter of strategic execution and solid financial results."
Looking ahead to fiscal 2024, management has reaffirmed its guidance for the entire year, with adjusted EBITDA forecasted to range between $970 million and $1 billion, while capital expenditure is anticipated to land between $430 million and $470 million.
Analysts tracking Summit Materials project the company’s profit to rise 10.1% year over year to $1.74 per share in fiscal 2024 and jump another 32.7% to $2.31 per share in fiscal 2025.
What Do Analysts Expect For Summit Materials Stock?
On Aug. 26, Summit Materials received a new “Overweight” rating from Morgan Stanley, as the investment firm believes Summit is well-positioned for growth due to anticipated improvements in both residential and non-residential construction sectors.
“Our current forecasts reflect a macro soft landing with modest improvements in residential and steady non-resi markets (namely infrastructure) supporting solid volume, price and margin growth in 2025,” said analyst Angel Castillo.
With these positive factors in play, the bank set a price target of $51 per share for Summit Materials, which indicates a healthy potential upside of nearly 30.3% from current levels.
Overall, SUM stock has a consensus “Moderate Buy” rating. Of the 14 analysts covering the stock, nine advise a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining four analysts advocate a “Hold.”
The mean price target for SUM is $48.07, indicating expected upside potential of 22.8% from current levels. The Street-high target price of $58 implies that the stock could rally as much as 48.2% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
