Companies that produce machinery and materials could benefit from plans to invest money in rebuilding roads, bridges, and other infrastructure.
Vulcan Materials, Caterpillar’s heavy-duty machinery and Vulcan Materials, a construction materials company, could generate additional revenue for years as roads, bridges, and buildings are renovated and modernized. This would have a wider impact on Sherwin Williams, United Rentals, and other companies that rent, buy, or sell construction materials.
Economists and business leaders agree that the plans are due long before they are necessary as the country’s infrastructure, including roads and bridges, is getting older without major overhauls. In its 2021 report, the American Society of Civil Engineers gave roads a poor grade. It stated that 40% of the country’s infrastructure is in poor or mediocre conditions. The U.S. does not score well on infrastructure such as bridges and schools.
Thursday’s announcement by President Joe Biden was that a bipartisan agreement has been reached for a $953 billion plan to improve infrastructure.
Although details of the deal are scarce, the pared down plan with $559 billion in spending increases has bipartisan support. It could be used to fund the president’s larger, $4 trillion proposals.
“From an economic growth standpoint, we see the infrastructure deal really increasing productivity,” stated Ken Johnson, analyst in investment strategy at Wells Fargo Investment Institute.
Citi analysts and others have been focused on the $1.7 trillion American Jobs plan. This amount or close to it seems to be what Congress ultimately approves or enacts via other means.
Every deal that is signed by the president will be spread over many years. This gives stock prices an initial boost, before long-term profits and revenue start to kick in. The longer-term benefits of long-running construction and overhaul projects will be more beneficial to larger companies.
Citi expects almost all heavy machinery manufacturers in its coverage group will benefit from government spending. However, Caterpillar is most likely to be the biggest beneficiary.
According to Citi, “Caterpillar’s strong market share positions in most heavy construction equipment categories in North America should not be surprising to anyone who has been to major highway projects,” said a Citi report.
As the economy recovers, profit margins for many businesses in the construction and industrial sectors are expected to increase. Spending over many years will ensure and boost growth by securing and increasing contracts for projects, orders for equipment and supplies.
Manufacturers of bulldozers, cranes, and other machinery are only a part of the larger picture. Concrete, asphalt and other road- and building material manufacturers are well-positioned for future infrastructure spending. Vulcan Materials, Martin Marietta Materials, and Martin Marietta Materials are two of the largest producers of aggregates in America.
In a conference call with investors, J. Thomas Hill, president of Vulcan Materials, stated that aggregates are going to be included in any definition of infrastructure if it is new construction. It will help us, whether it is roads, bridges, or any other form of infrastructure.
PPG Industries and Sherwin-Williams are both in a strong position to benefit from any increased government spending. For bridges to be strong against the elements, they need paint and other coatings. Roads and buildings need significant amounts of paint.
