Kristoffer Inton: From 2015 to 2016, aggregates producer Martin Marietta was one of the best performing U.S. stocks, more than doubling, while the S&P 500 gained just 12%. This year, Martin Marietta has severely lagged the market, losing roughly 5% while the market's gained nearly 15%.
Amid waning optimism for the Trump administration's infrastructure plan, investors seem to have lost faith in the U.S. aggregates story. However, despite near-term challenges, we think the outlook remains strong.
Anyone who's been in the U.S. has likely recognized the opportunity for better roads and bridges. Furthermore, these projects tend to be particularly aggregates-intensive, creating a prime opportunity for a company like Martin Marietta. Skeptics will often ask if inadequate funding has led to today's poor quality infrastructure, what makes the future outlook any better?
First, though federal funding has weakened over the years, states have increasingly relied on their own funding to pay for roadwork. Martin Marietta's footprint is heavy in states with some of the strongest funding mechanisms in the country. Second, despite the struggles the Trump administration has faced with healthcare reform, infrastructure enjoys more clear-cut bipartisan support. This gives us confidence that funding will eventually be found.
By 2021, we expect EBITDA to grow 150% from 2016. Strong demand not only drives higher volumes, but also allows a moaty company like Martin Marietta to raise prices robustly. We think Martin Marietta's year-to-date sell-off has created a prime opportunity for investors looking for exposure to U.S. infrastructure at an attractive entry point.