Can Martin Marietta (MLM) Sustain Strong Volume Trends In 2016?

We issued an updated research report on Martin Marietta Materials, Inc. (NYSE:MLM) on Jun 9, 2016. Martin Marietta is a leading supplier of construction aggregates in the U.S. which is used for construction of highways, infrastructure projects and residential, commercial and industrial construction.

The company performed below expectations in 2015. Nevertheless, the company began 2016 on a strong note, beating the Zacks Consensus Estimate for both earnings and sales in the first quarter of 2016.

Adjusted earnings of 69 cents per share rose significantly year over year driven by higher revenues and strong margins. Sales rose 16.2% year over year, supported by strong aggregates volume and pricing. Moreover, the company raised its adjusted EBITDA guidance backed by strong first-quarter results and improved expectations for the balance of the year. Management expects increased profitability and margin expansion across almost every business line.

MARTIN MRT-MATL Price and Consensus

MARTIN MRT-MATL Price and Consensus | MARTIN MRT-MATL Quote

The aggregates volume guidance was also raised as management expects better infrastructure spending than previously communicated. Infrastructure construction end market volumes are now expected to increase in the mid-to-high, single-digit range, comparing favorably with a mid-single digit increase expected previously.

The multi-year highway bill — five-year, $305 billion FAST Act — passed in December increases the funding certainty of state transportation programs. This coupled with state/local municipal level initiatives to finance infrastructure projects, should increase infrastructure activity in 2016 and thereby demand for Martin Marietta’s aggregates.

Non-residential end market volume is expected to grow in high single digits. In the non-residential construction market, management expects shipments to increase in both light and heavy construction sectors. Moreover, an improving economy and job growth are expected to boost private construction activities in the U.S. The residential market volumes are expected to increase in a double-digit range in 2016.

Though the performance in 2015 was below expectations, better volume growth expected in key end markets — infrastructure and non-residential construction markets — should increase demand for Martin Marietta’s products. This coupled with strong pricing gains is likely to boost sales and profits of the company.

Zacks Rank and Other Stocks to Consider

Martin Marietta carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector are TopBuild Corp. (NYSE:BLD) , Simpson Manufacturing Co., Inc. (NYSE:SSD) and Installed Building Products, Inc. (NYSE:IBP) . All the three stocks sport a Zacks Rank #1 (Strong Buy).