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As I like to do, I was looking through the list of top % gainers on the NYSE to see if I could get either a new name to discuss, or an old name that had not been discussed for at least a year. (I generally don't like to 'revisit' stocks unless a good 12 months has passed.)
Near the top of the list (following an old favorite of mine, Jack in the Box), I found Vulcan Materials (VMC), which as I write is trading at $121.65, up $10.97 or 9.91% on the day. I do not own any shares of Vulcan nor do I have any options on this stock.
This is actually an interesting stock pick, because Vulcan is in the process of acquiring Florida Rock (FRK), another old favorite of mine here on Stock Picks! In fact, I posted FRK on Stock Picks Bob's Advice on July 20, 2004, when Florida Rock was trading at $42.21/share. FRK split 3:2 on July 5, 2005, making my effective stock pick price actually $28.14. Unfortunately, I don't own any shares of FRK either :(, because with this buy-out from Vulcan, FRK is trading at $68.43 as I write, showing an appreciation of $40.29/share or 143.2% since posting. Oh well, that is water under the bridge, or in this case, concrete under the overpass you could say.
What is interesting, is that usually the acquiring company declines in price with the assumption of debt and the dilution of shares. In this case, the street liked the merger and the stock price of Vulcan and Florida Rock have been climbing.
Let's take a closer look at Vulcan and I will show you why I believe it deserves a place on the blog!
What exactly does this company do?
Reviewing the Yahoo "Profile" on Vulcan Materials, we find that the company
"...and its subsidiaries engage in the production, distribution, and sale of construction aggregates and other construction materials and related services in the United States and Mexico. Its construction aggregates include crushed stone, sand and gravel, rock asphalt, and recrushed concrete, which are used in highway construction and maintenance, as well as in the production of asphaltic and portland cement concrete mixes, and as railroad track ballast. It also offers other products and services, including asphalt mix and related products, concrete, trucking services, and water transportation services."
How did they do in the latest quarter?
On January 31, 2006, Vulcan announced 4th quarter 2006 results. Net sales climbed 9% to $816.3 million from $754.6 million in the same period last year. Net earnings per share increased 33% to $1.20/share from $.90/share in the 4th quarter of 2005.
The company also raised guidance on 1st quarter 2007, indicating earnings of $.75 to $.95/share for the quarter. Analysts had apparently been expecting $.69/share. The company also raised guidance on earnings for the full year to $5.51 to $5.91/share. Analysts had been expecting $5.40/share in 2007.
Another indicator on the confidence of management regarding company prospects, the company raised its dividend 24.3% to $.46/share from $.37/share.
How about longer-term financial results?
Examining the Morningstar.com "5-Yr Restated" financials on VMC, we see that the company, after a dip in revenue from $2.3 billion in 2001 to $2.2 billion in 2002, turned around and grew revenue strongly and steadily to $2.9 billion in 2005 and $3.3 billion in the trailing twelve months (TTM).
Earnings also dipped from $2.17 to $1.66 between 2001 and 2002, then increased steadily to $3.73/share in 2005 and $4.38/share in the TTM. The company also pays a nice dividend and has been increasing that dividend steadily from $.90/share in 2001 to $1.16/share in 2005 and $1.40/share in the TTM. After maintaining the shares outstanding stable with 101 million in 2001 increasing less than 1% to 102 million in 2005, the company retired shares recently with only 94 million reported in the TTM.
Free cash flow has been positive, although not increasing recently, with $325 million in 2003, dipping to $258 million in 2005 and $199 million in the TTM.
The balance sheet appears solid with $68.7 million in cash and $762.7 million in other current assets. This total of $831.4 million can easily cover the $574.9 million in current liabilities and the current ratio works out to a reasonable 1.45. The company, in addition, has $922.3 million in long-term liabilities per Morningstar.
What about some valuation numbers?
Checking Yahoo "Key Statistics" on Vulcan, we find that this is a large cap stock with a market capitalization of $11.55 Billion. The trailing p/e isn't bad at 26.03 (imho), with a forward p/e estimated (fye 31-Dec-08) of 19.36. The PEG is a bit rich at 2.16.
According to the Fidelity.com eresearch website, the Price/Sales (TTM) is a bit rich at 3.21 with an industry average of 2.18. The company has a Return on Equity (TTM) of 23.67% much higher than the industry average of 14.47%.
Finishing up with Yahoo, we find that there are 94.70 million shares outstanding with 93.94 million that float. Of these, 3.9% of the float is out short representing a short ratio of 8.3 trading days of volume. This exceeds my own particular '3 day rule' for short interest and we may well be seeing a bit of a 'squeeze' of the shorts as the stock price climbs.
The forward dividend is $1.84 yielding a not inconsequential 1.6%. The last stock split was a 3:1 split in March, 1999.
What does the chart look like?
If we look at a "Point & Figure" chart on Vulcan from StockCharts.com, we can see how the stock surged between August, 2005, and April, 2006, from a price of $64 to a high of $91. The stock then sold off to a 'triple bottome' at the $66 level, only to turn higher moving almost vertically between $92 and $123. The stock does appear to be a bit overextended technically.
Summary: What do I think?
Well, in general I like this company. They had a great quarter, beating estimates and raising guidance, their Morningstar.com report looks solid with steady revenue and earnings growth the past several years and they even pay an increasing dividend. They have maintained their outstanding shares and even bought back some recently.
Free cash flow is positive, but decreasing, and the balance sheet appears reasonable.
Valuation-wise the p/e is ok with a PEG over 1.5 suggesting a bit of a rich valuation. The Price/Sales is also a bit higher than average for its industry, although profitability, as measured by the Return on Equity is also higher than average. In addition, there are a bunch of shares out short that may well be scrambling to be 'undone', with the price moving sharply higher today. The chart does look a bit over-extended on an unmaintainable verticle rise, but overall, it appears that this company has been doing things right for quite awhile.
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