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On Friday, Wolfe Research adjusted its stance on Vulcan Materials Company (NYSE:), downgrading the stock from Outperform to Peer Perform. The move follows a significant 31% increase in Vulcan’s share price over the last four months. Wolfe Research’s analysts highlighted that the shares now appear fully valued, trading at roughly two times above the historical five-year average forward EV/EBITDA in a construction market that is not showing signs of growth.
The revised fair value range set by Wolfe Research for Vulcan Materials is between $264 and $281. This valuation is based on a blended 16 times the estimated EV/EBITDA for the years 2024 and 2025. Additionally, it includes an expected $750 million payment from the Mexican government by the end of the year as compensation for the expropriated Yucatan quarry.
Wolfe Research’s valuation incorporates EBITDA estimates that surpass the consensus and utilizes multiples that are higher than Vulcan’s average over the past three, five, and ten years. Historically, Vulcan’s EV/EBITDA multiples have been 15.2x, 15x, and 14.2x, respectively. The current assessment by Wolfe Research suggests a cautious outlook on the stock’s potential for further price appreciation given the recent rally and the valuation multiples exceeding historical averages.
Investors are now digesting this new position from Wolfe Research, as Vulcan Materials’ stock is being reassessed in light of the recent price surge and the updated industry perspective. The downgrade reflects the analyst’s view of the company’s valuation of the broader market and expected industry conditions.
InvestingPro Insights
In light of Wolfe Research’s downgrade of Vulcan Materials Company (NYSE:VMC), investors might find the following metrics and InvestingPro Tips useful for a deeper analysis. Vulcan Materials is currently trading at a high Price / Book multiple of 4.79 as of the last twelve months ending Q4 2023. This aligns with Wolfe Research’s observation of the stock trading at valuations above its historical average. Additionally, the company’s P/E Ratio stands at 38.62, which further indicates a premium valuation when compared to near-term earnings growth.
Despite the high valuation multiples, Vulcan Materials has demonstrated a strong financial performance with a Revenue Growth of 6.38% over the last twelve months as of Q4 2023. This growth is complemented by a robust EBITDA Growth of 24.53% in the same period, underlining the company’s profitability and operational efficiency.
Among the InvestingPro Tips, it’s noteworthy that Vulcan Materials has a perfect Piotroski Score of 9, suggesting a healthy financial state. Moreover, the company has raised its dividend for 10 consecutive years, which could be appealing for income-focused investors. For those considering Vulcan Materials for their portfolio, it’s important to weigh these positive aspects against the potential overvaluation signals.
For a comprehensive investment decision, investors can explore additional InvestingPro Tips for Vulcan Materials, which include insights on earnings revisions, stock volatility, and liquidity. There are currently 19 additional tips available on InvestingPro, which can be accessed at: https://www.biedexmarkets.com/pro/VMC. Moreover, investors looking to subscribe to InvestingPro for more in-depth analysis can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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