In­fra­struc­ture stocks for a Trump or Clin­ton win

Financial Mirror (Cyprus) - - FRONT PAGE - By Jon C. Ogg

If there was one word that could be used to de­scribe the 2016 pres­i­den­tial elec­tion, per­haps “ten­sion” is about as close as you can get. With the lines shift­ing be­tween whether it will be Pres­i­dent Trump or Pres­i­dent Clin­ton be­ing blurred again in re­cent days, the re­al­ity is that the U.S. pub­lic has been told re­peat­edly that they will get hun­dreds of bil­lions of dol­lars worth of in­fra­struc­ture spend­ing in the com­ing years.

24/7 Wall St. has been fo­cus­ing on com­pa­nies that can sur­vive and thrive un­der ei­ther can­di­date. Here, six com­pa­nies are fea­tured from mul­ti­ple an­a­lysts on Wall Street that should be in­fra­struc­ture spend­ing win­ners in the com­ing years.

The Amer­i­can So­ci­ety of Civil Engi­neers has re­cently given the United States econ­omy a fail­ing grade for its in­fra­struc­ture. Its view is that $3.6 trln would be needed to raise the stan­dard of Amer­ica’s roads and in­fra­struc­ture to ac­cept­able lev­els be­fore 2020 — and nei­ther can­di­date has of­fered up any­thing that grandiose.

Th­ese are com­pa­nies that should do fine in the quar­ters and years ahead, once the elec­tion is over and life can re­sume with­out ev­ery­one fight­ing over their pres­i­den­tial hopes.

Cater­pil­lar Inc. (NYSE: CAT) will be a big win­ner if se­ri­ous in­fra­struc­ture spend­ing be­gins to take off again. Maybe this won’t be in its ma­jor min­ing equip­ment sales in the U.S. or emerg­ing mar­kets, but Cater­pil­lar al­ready ben­e­fits from con­struc­tion spend­ing. Nu­mer­ous an­a­lyst up­grades have been seen around this strat­egy, and this is the best per­form­ing Dow Jones In­dus­trial Av­er­age stock of 2016, de­spite not see­ing a sales re­cov­ery take place yet.

Goldman Sachs re­cently gave Cater­pil­lar a ma­jor up­grade to Buy from Neu­tral with a $112 price tar­get on Oc­to­ber 11. The prior close was $88.22, but shares have pulled back to $83.50 af­ter earn­ings. The con­sen­sus an­a­lyst tar­get price was $77.37 mid-month and has now risen to $80.50. Goldman Sachs has the high­est an­a­lyst tar­get of all now, based on mar­gin ex­pan­sion and an earn­ings re­cov­ery much greater than in­vestors have ex­pected.

AECOM (NYSE: ACM) may op­er­ate all around the world, but Credit Suisse be­lieves that its en­gi­neer­ing ser­vices would ben­e­fit from large in­fra­struc­ture projects, and the firm thinks it is al­ready as good at cash gen­er­a­tion with lower en­ergy ex­po­sure than some peers. The 2014 URS ac­qui­si­tion is also help­ing, and AECOM trades at only about eight times ex­pected 2017 earn­ings as is. Credit Suisse had a $36 price tar­get in Septem­ber. UBS re­cently pro­jected 20% or­ganic earn­ings per share growth for AECOM in 2017, re­it­er­at­ing its Buy rat­ing and $37 price tar­get. That is based on 11 times the $3.40 per share earn­ings tar­get for 2018.

With shares at $27.84 now, AECOM’s 52-week trad­ing range is $22.80 to $36.30, and it has a con­sen­sus price tar­get of $34.67. One fi­nal note: AECOM has a his­tory of mixed re­sults, and it is cur­rently un­der sev­eral class ac­tion suit in­ves­ti­ga­tions.

Deutsche Bank re­cently main­tained Chicago Bridge & Iron Co. N.V. (NYSE: CBI) as Buy with a $35 price tar­get. The firm noted it as a key in­fra­struc­ture play a month or so ear­lier than the elec­tion. Deutsche Bank be­lieves that both can­di­dates will press for bil­lions of new dol­lars to go to­ward fix­ing the elec­tric grid, roads and bridges, air­ports and count­less other projects.

S&P’s eq­uity group re­cently kept a Buy rat­ing and a $36 price tar­get for the stock. Sales are seen down 16% in 2016 af­ter the nu­clear con­struc­tion busi­ness sale, but the firm sees an in­creased ac­tiv­ity for both large and small projects in 2017 be­ing off­set by low en­ergy prices and a strong dol­lar to end down just 5% in 2017. It cur­rently is val­ued at less than seven times ex­pected earn­ings.

Chicago Bridge & Iron shares re­cently traded at $32.15, with a con­sen­sus tar­get price of $36.07 and a 52-week range of $26.12 to $45.92.

Jef­feries listed Nu­cor Corp. (NYSE: NUE) as be­ing 50% around con­struc­tion, 10% from trans­porta­tion and 19% tied to in­dus­trial and man­u­fac­tur­ing. Th­ese should bode well un­der the in­fra­struc­ture theme, par­tic­u­larly with Jef­feries talk­ing about it be­ing sig­nif­i­cantly lev­ered to non­res­i­den­tial con­struc­tion and us­ing only 83% of ca­pac­ity. Jef­feries shows Nu­cor with a Buy rat­ing and $55 price tar­get.

S&P’s eq­uity team re­cently re­it­er­ated its Buy rat­ing and its $55 price tar­get. S&P sees 2016 op­er­at­ing earn­ings of $2.50 per share in 2016 ris­ing to $3.15 per share in 2017, driven partly by con­struc­tion and in­fra­struc­ture mar­kets. Thom­son Reuters sees earn­ings ris­ing to $2.93 per share in 2017 and $3.35 per share in 2018.

Nu­cor shares re­cently traded at $48.25, in a 52-week range of $33.90 to $57.08. The con­sen­sus price tar­get is $52.28.

In early Oc­to­ber, Vul­can Ma­te­ri­als Co. (NYSE: VMC) was touted by Wy­att Re­search as a would-be win­ner from in­fra­struc­ture spend­ing gains by ei­ther can­di­date. The rea­son: Vul­can Ma­te­ri­als is al­ready the largest sup­plier of con­struc­tion ag­gre­gates, which means sand, gravel and crushed stone, and the pub­lic sec­tor al­ready ac­counts for half of its prod­uct ship­ments un­der con­tract with rather high bar­ri­ers to en­try.

An­other view came from S&P, with its eq­uity team’s Strong Buy rat­ing and $138 price tar­get. The S&P view is that ris­ing pub­lic con­struc­tion ac­tiv­ity will be a mean­ing­ful de­mand cat­a­lyst for Vul­can for sev­eral years in the fu­ture.

With shares at $113.30, the 52-week range is $78.83 to $127.20 and the con­sen­sus price tar­get is $128.18.

Jef­feries high­lighted Head­wa­ters Inc. (NYSE: HW) as hav­ing ex­po­sure to in­fra­struc­ture spend­ing through its con­struc­tion ma­te­ri­als busi­ness. Where the firm sees a big boost is from about 15% of its to­tal sales com­ing from in­fra­struc­ture con­struc­tion via fly ash. Its rat­ing is Buy with a $21 price tar­get.

Deutsche Bank also re­cently is­sued a re­it­er­ated Buy rat­ing, along with a $22 price tar­get. The view is that Head­wa­ters will have $140 mln of free cash flow in 2017 that will be used to trim debt and will help bring or­ganic growth. The firm noted that in­fra­struc­ture de­mand should pick up with high­way bill money be­ing spent, and non­res­i­den­tial mar­ket share gains should bol­ster growth too.

Shares were chang­ing hands at $16.40 re­cently, in a $13.62 to $21.25 range in the past 52-weeks, while the con­sen­sus tar­get price is $22.72.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.