After a challenging year, the infrastructure industry has made a significant recovery and is expected to capitalize on growth opportunities next year. Anirban Basu, the chief economist for Associated Builders and Contractors and CEO of consulting firm Sage Policy Group, said that the construction outlook for 2022 is looking positive.
Given this backdrop, Eaton Corporation plc (ETN) and Brookfield Infrastructure Corporation (BIPC) could be big winners on the back of their improving fundamentals.
However, after the public rejection of president Biden’s Build Back Better legislation by a key senator, Joe Manchin, the social spending plan’s prospects look uncertain. Therefore, we believe fundamentally weak infrastructure stocks Vulcan Materials Company (VMC) and Martin Marietta Materials, Inc. (MLM) are best avoided now.
Click here to check out our Infrastructure Sector Report
Stocks to Buy:
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company that operates through Electric Global; Hydraulics; Aerospace; Vehicle; and eMobility segments. The company’s segments offer electrical, industrial, and residential products, pneumatic systems for commercial and military use. It also engages in the supply of drivetrain, powertrain systems, and critical components for cars, light trucks, and commercial vehicles.
In November, ETN partnered with the U.S. Army Engineer Research and Development Center (ERDC), Construction Engineering Research Laboratory (CERL), and the Department of Public Works at Fort Hood, Tex., to demonstrate a microgrid’s ability to operate Fort Hood’s Robert Gray Army Airfield independently from the utility grid. ETN’s demonstration is an important milestone for implementing resilient infrastructure at military installations.
ETN’s net sales increased 8.8% year-over-year to $4.92 billion in the third quarter, ended September 30, 2021. The company’s net income grew 40.9% from its year-ago value to $630 million. Its EPS rose 41.4% from the prior-year quarter to $1.57. Also, the company’s adjusted earnings increased 28.9% year-over-year to $701 million.
Analysts expect ETN’s revenue for its fiscal year 2021 to be $19.8 billion, representing 10.9% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. ETN’s EPS is expected to increase 55% in the current year. The stock has gained 43.6% in price over the past year and 39.9% year-to-date.
ETN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has a B grade for Stability and Quality. We have also graded ETN for Growth, Momentum, Value, and Sentiment. Click here to access all ETN’s ratings. ETN is ranked #31 of 78 stocks in the B-rated Industrial – Machinery industry.
Brookfield Infrastructure Corporation (BIPC)
BIPC owns and operates regulated natural gas transmission systems in Brazil. The New York City-based company operates around 2,000 kilometers of natural gas transportation pipelines in Rio de Janeiro, Sao Paulo, and Minas Gerais; and 3.6 million gas and electricity connections, and 1.5 million installed smart meters in the United Kingdom.
For the third quarter, ended September 30, 2021, BIPC’s revenues increased 33% year-over-year to $2.94 billion. The company’s net income grew 262.2% from its year-ago value to $536 million. Its cash and cash equivalents rose 112.2% to $1.84 billion for the nine months ended September 30, 2021. And the stock has surged 1.7% in price over the past five trading days.
BIPC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Growth and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see BIPC’s ratings for Stability, Value, Momentum, and Sentiment here. BIPC is ranked #1 of 58 stocks in the Utilities – Domestic industry.
Stocks to Avoid:
Vulcan Materials Company (VMC)
VMC is a construction aggregate company that is based in Birmingham, Ala., which operates through four segments: Aggregates; Asphalt; Concrete; and Calcium. The company has approximately 380 active aggregates facilities that sell aggregates used as ballast to construct and maintain railroad tracks.
During the third quarter, ended September 30, 2021, VMC’s total revenues increased 15.8% year-over-year to $1.52 billion. However, the company’s net earnings decreased 11.5% from the year-ago value to $176.9 million. Also, its EPS declined 11.9% from the prior-year quarter to $1.33.
VMC’s POWR Ratings are consistent with this bleak outlook. The stock has an F grade for Value and a C grade for Stability and Quality.
Click here to see the additional POWR Ratings for VMC (Momentum, Growth, and Sentiment). The stock is ranked #44 of 55 stocks in the B-rated Industrial – Building Materials industry.
Martin Marietta Materials, Inc. (MLM)
MLM is an American-based building materials supplier company that operates in 30 states. The Raleigh, N.C.-based company offers crushed stone, sand, and gravel products; ready mixed concrete and asphalt; paving products and services; and Portland and specialty cement. In addition, the company’s Magnesia Specialties Business includes magnesia-based chemicals and dolomitic lime businesses.
During the third quarter, ended September 30, 2021, MLM’s total revenues increased 17.9% year-over-year to $1.56 billion. The company’s earnings from operations decreased 10.9% from the year-ago value to $356.9 million. Its interest expense rose 54.4% from the prior-year quarter to $44.3 million. Also, the company’s EPS declined 13.6% year-over-year to $4.07. Its EPS is expected to decline 1% in the current quarter.
MLM’s poor prospects are reflected in its POWR Ratings. The stock has a D grade for Value and a C grade for Stability and Sentiment. Click here to access the additional MLM ratings (Growth, Quality, and Momentum). MLM is ranked #39 in the same industry.
Click here to check out our Infrastructure Sector Report
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ETN shares were trading at $169.38 per share on Monday morning, up $1.34 (+0.80%). Year-to-date, ETN has gained 43.78%, versus a 28.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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