What a Proposed Infrastructure Bill May Mean for Stocks

On June 15, Bloomberg reported the Trump administration would soon propose a $1 trillion infrastructure bill. Given that we’ve been including an eventual improvement in infrastructure funding in our valuation assumptions, our fair value estimates have tended to be on the higher end of consensus. As such, we maintain our fair value estimates for narrow-moat Martin Marietta MLM of $230 per share, narrow-moat Vulcan VMC of $125 per share, narrow-moat Summit SUM of $19.50 per share, and no-moat U.S. Concrete USCR of $27 per share.

The plan could be particularly beneficial for U.S. heavy building materials companies Martin Marietta, Vulcan Materials, Summit Materials, and U.S. Concrete as most of the money would likely be earmarked for roads and bridges. As we write, these stocks are up 6% or more, with highly leveraged and extreme uncertainty U.S. Concrete up 20%. Given that stocks are again pricing in better funding before it's even passed, we see limited risk-adjusted upside after June 16’s rally.

If the plan passes, the timing for heavy building materials demand would be particularly fortunate for two reasons. First, COVID-19 is likely to threaten near-term nonresidential construction demand, especially for buildings such as new hotels or offices. If a bill were to pass before nonresidential construction demand slowed, the more material-intensive infrastructure end-market would more than make up for any lost demand.

Second, the FAST Act, the $305 billion five-year infrastructure bill passed under former President Obama, is set to expire in September. Passing another multiyear infrastructure program soon would allow national road funding to continue seamlessly.

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