Biden's Infrastructure Plan Would Benefit Aggregates

On March 31, President Joe Biden’s administration released the initial details of its infrastructure plan, proposing $2 trillion in total spending over eight years. Of this, $621 billion would be directed toward transportation infrastructure, averaging nearly $80 billion per year in spending compared with roughly $60 billion per year from the FAST Act passed in 2015. Current highway funding is set to expire in September, giving Congress and the White House half a year to reach a deal. We continue to expect an agreement will be reached, driving increased infrastructure activity and higher volume for heavy building materials.

We maintain our fair value estimates of $250 per share for narrow-moat Martin Marietta MLM, $135 per share for narrow-moat Vulcan Materials VMC, $20 per share for narrow-moat Summit Materials SUM, and $41 per share for no-moat U.S. Concrete USCR. All four stocks trade above our fair value estimates, limiting risk-adjusted upside from today’s prices. Our fair value estimates are based on 40%-80% EBITDA growth over the next five years for the group predicated on increased infrastructure spending, so further upside would have to be justified by even more profit growth than we forecast.

In addition to $621 billion for transportation infrastructure (including roads, bridges, mass transit, and electric vehicle development), the proposal includes $400 billion for expanding elderly home care, $300 billion for water, Internet, and electrical grids, $300 billion for affordable housing and school improvements, and $580 billion for manufacturing, research and development, and job training programs. Transportation enjoys the strongest bipartisan support and is the most materials-intensive, while the additional categories are more likely to face Republican resistance but less impactful to materials demand.

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