With the advent of the coronavirus pandemic, the construction industry has been one of the hardest-hit segments, essentially coming to a halt. However, historically low interest rates have boosted construction activities over the last few months, as cheap financing has driven demand. According to the U.S. Census Bureau, total construction spending increased 3.7% year-over-year to $1438.5 billion in October 2020. The sector is expected to flourish further based on president-elect Jo Biden proposal to invest $1.3 trillion in infrastructure over 10 years.
The gradual recovery of Infrastructure stocks is reflected in the performance of iShares U.S. Infrastructure ETF (IFRA), which has gained 69.2% since hitting its low in March. The ETF has gained 19.2% in the past 3 months. With their strong financials, we think BHP Group Limited (BHP), Nucor Corporation (NUE), and Cemex, S.A.B. de C.V. (CX) are three infrastructure stocks that are well positioned to benefit from the increasing spending in the construction space.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP is a global resources company. BHP is engaged in the discovery, acquisition, development, and marketing of natural resources worldwide. The company operates primarily through four segments — Petroleum, Copper, Iron Ore, and Coal.
For the quarter ended September 2020, the production of Zinc has increased 68% year-over-year to 34 kt. Its iron ore production has increased 8% year-over-year to 66 Mt. Its metallurgical coal production has increased 4% year-over-year to 10 Mt, and Nickel West production has increased 3% year-over-year to 22 kt.
BHP’s consensus revenue estimate of $45.58 billion for the quarter ending June 2021 represents a 6.2% increase from the same period last year. The consensus EPS estimate of $3.80 for the quarter ending June 2021 indicates a 6.1% increase year-over-year. Moreover, the company’s EPS is expected to increase at a rate of 5.3% per annum in the next five years.
Earlier this month, it was reported that BHP’s South Flank iron ore’s construction project is now more than 85% complete. It is BHP’s biggest construction project. The company partnered with the Town of Port Hedland and the Pilbara Ports Authority to improve the aesthetics and amenities of the West End of Port Hedland. The company has signed a memorandum of understanding (MOU) with China Baowu, a world leading steel producer, to share technical knowledge in the pursuit of technical knowledge regarding the need to reduce global gas emissions facing the global steel industry, .BHP has gained 15.3% year-to-date and is currently trading just 1.2% below its 52-week high.
How does BHP stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating
The stock is also ranked #1 out of 33 stocks in the Industrial - Metals industry.
Nucor Corporation (NUE)
NUE is North America’s most diversified steel and steel=products company. NEU operates through three segments — steel mills, steel products and raw materials. The steel mills segment produces and distributes sheet steel, plate steel, structural steel, and bar steel. NUE’s products are used in automotive, energy, agricultural, heavy equipment, and transportation sectors.
The company’s consolidated net sales increased 13.9% sequentially to $4.93 billion for the third quarter ended September 2020. Total steel mill shipments have increased 18% sequentially to 5,626 tonnes (in thousands). Bar steel mills total shipments have increased 4.4% year-over-year to 2,119 tonnes (in thousands), and steel mill shipments to internal customers represented 21% of total steel mill shipments. EPS increased 75.7% sequentially to $0.65.
Analysts expect NUE’s revenue to increase 1.2% for the quarter ending December, and 3.5% next year. The company’s EPS is expected to increase 100% for the current quarter ending December 2020, and 11.1% next year. In fact, NUE has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters.
On November 13th, the company signed a 15-year Virtual Power Purchase Agreement (VPPA) with EDF Renewables North America (EDFR) for 250 megawatts of new solar energy in Texas. NUE entered an asset purchase agreement to acquire the Precoat Metals Corporation's paint line facility located in Armorel, Arkansas. The company was recognized as a General Motors Company (GM) supplier of the year during a virtual ceremony held earlier this year. NUE has gained 26.4% in the last six months but is currently trading 4.7% below its 52-week high of $58.70.
NUE’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Industry Rank and a “B” for Peer Grade. Among the 28 stocks in the Steel industry, it’s ranked #3.
Cemex, S.A.B. de C.V. (CX)
Based in Mexico, CX is an operating and holding company engaged primarily in the production, distribution, marketing and sale of cement, ready-mix concrete, aggregates, clinker, and other construction materials. The Company operates in various locations, including Mexico, the United States, Europe, South America, Central America, the Caribbean, Asia, the Middle East, and Africa.
CX’s net sales have increased 1.7% year-over-year to $3.4 billion for the third quarter ended September 2020. Gross profit increased 1.6% year-over-year to $1.2 billion. In Mexico, the company’s cement volumes increased 11% year-over-year. In the United States, its cement and aggregates volumes has increased 3% year-over-year, and 2% year-over-year, respectively. The volume increases were primarily driven by a pickup in residential activity and growth in the infrastructure sector.
Analysts expect CX’s revenue to increase 1.9% for the quarter ending March 2021, and 5.9% next year. The company’s EPS is expected to increase 120% for the current quarter ending December 2020, 172.7% next year and at a rate of 33.2% per annum in the next five years.
CX completed its acquisition and merger of Southdown, Inc. (SDW) in November. And a couple of months ago it announced that it is the first company in its sector to target a carbon emission reduction in its European operations by at least 55% by 2030. On a year-to-date basis, CX has rallied 48.2% to close yesterday’s session at $5.63. During the past six months, CX soared 95.8%.
It is no surprise that CX is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. In the 42-stock Industrial - Building Materials industry, it is ranked #6.
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BHP shares were trading at $62.93 per share on Tuesday afternoon, up $0.40 (+0.64%). Year-to-date, BHP has gained 20.74%, versus a 16.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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