$1.2 Trillion Infrastructure Deal Funds Roads, Bridges

On Nov. 5, the U.S. House of Representatives passed a $1.2 trillion infrastructure bill nearly three months after the U.S. Senate approved its spending package. Lawmakers earmarked approximately $110 billion for spending on new roads, bridges, and other major infrastructure projects. Once signed into law, we believe many of the companies under our coverage will see increased demand for their products and services. That said, our forecasts already account for increased infrastructure spending over the next five years. Therefore, we are maintaining our fair value estimates for all companies set to profit from the infrastructure bill.

For aggregates, Martin Marietta and Vulcan Materials are well positioned to benefit from increased spending, however, we already forecast a near doubling of adjusted EBITDA by 2025 for both companies compared with 2020. To reach current market prices, we’d have to assume adjusted EBITDA grows to a significantly higher level than our 2025 estimate. Looking at equipment manufacturers, we expect Caterpillar’s and Deere’s road construction businesses to see higher sales, as municipalities across the U.S. will allocate new funding to much needed road repair.

Many urban roads and highways in the U.S. are in relatively poor condition, resulting in significant pent-up road construction demand. With new spending expected to come online, we believe increased demand for infrastructure-related products and services will flow through starting in late 2022, with the majority of projects likely beginning in 2023 and 2024. This is largely based on our view that dealers will gradually restock their inventories following a period where construction spending had been depressed due to the pandemic. In addition, we also expect construction companies to benefit from increased spending in emerging economies focused on infrastructure development. Oftentimes, regulatory authorities look to infrastructure development to drive economic growth.

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