In early Wednesday morning trading, CRH (CRH)hit its 68th 52-week high of the past year, putting it atop Barchart.com’s list of 52-week new highs, six clear of Door Dash (DASH)in second place.
The Irish-based building materials manufacturer hit its 68th 52-week high, and its shares are up 81% over the past year and 55% in the past six months. To say it’s a momentum stock would be an understatement.
Could it reach $100 by the end of 2024? It could. Here’s why.
Growth Should Continue
It’s been three weeks since CRH reported its full-year 2023 results, which included a 7% increase in revenue to $34.9 billion and 14% year-over-year growth to $3.1 billion. These were record results for the company, which also experienced a 10th consecutive year of margin expansion.
Three of the company’s four business segments experienced higher revenues in 2023, partly offset by a 2% decline from its Europe Building Solutions business.
Due to its strong results in 2023, the company expects pricing momentum to continue in 2024 as infrastructure spending continues in North America and Europe. The only downer in its guidance was the company's admission that North American residential new-build construction remains subdued due to higher interest rates. That should dissipate in the second half as interest rate cuts happen.
As far as numbers go, it expects earnings per share of $5.30 at the midpoint of its 2024 guidance. Despite the stock’s large gains in 2024, it trades at just 16.4x its 2024 earnings.
In an interview with Yahoo Finance, CRH CEO Albert Manifold discussed how the company has delivered margin expansion despite persistent inflationary pressures throughout 2023.
According to Manifold, it comes down to the company’s focus on higher-margin opportunities rather than simply providing commodity-type products with little pricing power.
“So we're always working on increasing the value we give to our customers, we serve our customers with. We don't just provide basic commodity products, we actually turn those basic materials into complex construction solutions. So we get paid for the value and that's how we've been able to drive the margin last year and indeed for the nine previous years,” Manifold said on Feb. 29.
Manifold said that about 50% of its revenue is from infrastructure projects funded by the federal and state governments. The country is finally investing in revitalizing its infrastructure after years of neglect. That sense of urgency has minimized the effect of interest rates on these projects.
The company also generates 25% of its revenue from non-residential construction, where it provides its products for building new manufacturing plants for reshoring and onshoring projects.
That leaves residential construction for the remaining 25%. The CEO didn’t try to duck the reality that interest rates have hurt this part of its business.
“Residential is and residential has been very slow, but that's the smallest part of our business. But even as our business is only firing on two of the three cylinders, we're still being able to produce those results that we've announced here this morning,” Manifold told Yahoo Finance.
As I said earlier, interest rate cuts later in the year—some suggest four could happen by Dec. 31—will increase builders' demand for its products.
Valuation Appears Bloated
Looking at the company's historical valuation, you can argue that CRH stock is more expensive by virtually every financial metric, including earnings per share, than at any other time in the past decade.
For example, its five-year average price-to-forward earnings is 13.04, according to Morningstar.com, considerably lower than the 16.4x today.
However, that doesn’t consider the changes it’s made in its business to make it less prone to economic downturns while boosting its margins because of the value-added proposition it provides investors.
A bullish argument would be that multiple expansion from its historical numbers is justified.
Analysts agree. According to MarketWatch, of the 23 analysts who cover its stock, 20 rate it a Buy, with a $93.50 price target, 8% higher than where it’s currently trading.
CRH might have hit an all-time high of $88 this morning, but that doesn’t take into consideration that once its residential construction gets going again, its earnings won’t have trouble increasing by 10-20% annually.
In 2023, its adjusted EPS increased by 30% to $4.65. In 2024, it’s expecting EPS growth between 11% and 17%, and that doesn’t include an improvement due to lower interest rates in the second half of the year.
As Manifold said, “There's a need for housing going forward here in the United States that will stretch on for decades.”
Despite the stock’s significant gains, I don’t believe FOMO is at play here. CRH’s business is humming. It’s an excellent long-term buy.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
