While the housing market has remained hot amid the COVID-19 pandemic, companies producing and supplying building materials were severely hit by the public health crisis, due to the precipitous decline in construction activities it caused. However, because the U.S. economy is reopening at a faster-than-expected pace, the demand for building materials has started to increase this year. Furthermore, the expected positive impact of President Biden’s proposed infrastructure spending on the industry is driving investors’ interest. According to Fitch Ratings, “Passage of an infrastructure bill would be a credit positive for U.S. buildings material issuers but financial implications will depend on the actual size of the bill and take time to materialize.”
Investor interest in this space can be partly evidenced by the SPDR Homebuilders ETF’s (XHB) 28.3% returns so far this year, compared to SPDR S&P 500 ETF Trust’s (SPY) 11.3% gains over this period.
The industry’s prospects look bright worldwide. With mass vaccination drives gradually containing the spread of the virus, increasing activity in the commercial, infrastructure, and residential segments is likely. The global building materials market is expected to grow to $343 billion in 2025 from $272 billion in 2020.
Given this favorable backdrop, we believe the stocks of established building material companies Carrier Global Corporation (CARR), Owens Corning (OC), GMS Inc. (GMS), and Quanex Building Products Corporation (NX) are well-positioned to hit new highs.
Click here to check out our Infrastructure Sector Report for 2021
Carrier Global Corporation (CARR)
CARR offers heating, ventilation, and air conditioning (HVAC), refrigeration, fire, security, and building automation technologies worldwide. The company operates primarily through three segments—HVAC, Refrigeration, and Fire & Security. It sells its products under the brand names Autronica, Chubb, Edwards, Fireye, Automated Logic, and Riello, among others.
On April 19, CARR announced that it had signed agreements to acquire Guangdong Giwee Group and its subsidiaries. The move is expected to expand the company’s access to the growing VRF and light commercial market.
In March, the company agreed with Watsco to form a joint venture to acquire Temperature Equipment Corporation. The acquisition supports its plan to execute strategic, bolt-on M&As.
CARR’s net sales increased 2.1% year-over-year to $4.59 billion for the fourth quarter ended December 31, 2020. Its operating profit grew 123.5% year-over-year to $1.25 billion, while its net income increased 100.9% year-over-year to $884 million. The company’s EPS increased 100% year-over-year to $1.00.
For the quarter ending June 30, 2021, analysts expect CARR’s EPS and revenue to increase 48.5% and 18.1%, respectively, year-over-year. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 193.1% over the past year and closed yesterday’s trading session at $43.06. It hit its 52-week high of $44.65 on April 19, 2021.
CARR’s POWR Ratings reflect this promising outlook. The company has a B overall rating, which translates to Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
The stock has a B grade for Sentiment. Within the A-rated Industrial – Building Materials industry, it is ranked #13 of 55 stocks.
To see the additional POWR Ratings for CARR (Growth, Value, Momentum, Stability, and Quality), click here.
Owens Corning (OC)
Headquartered in Toledo, Ohio, OC is a leading Fortune 500 company in the building and industrial materials space. Operating in33 countries, the company manufactures and advances a range of insulation, roofing, and fiberglass composite materials. It mainly operates through three segments—Composites, Insulation, and Roofing.
The company paid a quarterly cash dividend of $0.26 on April 2, 2021. In December 2020, OC also approved a share repurchase plan for up to 10 million shares of the company’s common stock in addition to a previously announced share buyback program. These actions reaffirm the company’s capital allocation strategy and reflect its ability to operate, execute, and deliver in a challenging environment.
OC is scheduled to release its financial results for its fiscal year 2021 first quarter (ended March 31, 2021) on April 28 before the market opens. For the fourth quarter ended December 31, 2020, OC’s net sales increased 13.8% year-over-year to $1.93 billion. Its operating income climbed 60.9% year-over-year to $272 million. The company’s net earnings increased 217.8% year-over-year to $232 million, while its adjusted EPS grew 68.1% year-over-year to $1.90.
For the quarter ended March 31, 2021, analysts expect OC’s EPS to come in at $1.43, which represents a 138.3% year-over-year increase. It surpassed consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 24.9% year-over-year to $1.91 billion for the quarter ending June 30, 2021. The stock has gained 157.3% over the past year and closed yesterday’s trading session at $95.79. It is currently trading just 2.2% below its 52-week high of $97.90, which it hit on April 19, 2021.
OC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Momentum, Sentiment, and Quality also.
We have also graded OC for Value and Stability. Click here to access all of OC’s ratings.
OC is ranked #9 in the Industrial – Building Materials industry.
GMS Inc. (GMS)
Founded in 1971, GMS is a leading North American specialty distributor of interior building products. Its offerings include wallboard, ceilings, and interior construction products. It also supplies complementary products, such as insulation and ready-mix-joint compounds. The company has a network of roughly 260 distribution centers.
WSB Titan, a subsidiary of GMS, completed the acquisition of D.L. Building Materials, Inc. on February 5. With this acquisition, the company expanded its presence in Canada, in the Ottawa-Gatineau Market. The move marks an important step in GMS’ international market expansions.
The company’s “other” product sales for fiscal 2021 third quarter (ended January 31, 2021) came in at $234.20 million, which represents an 8.7% year-over-year increase Its net income increased 48.2% year-over-year to $16.13 million. Also, GMS’ adjusted EPS was $0.60, up 15.4% year-over-year.
For the quarter ending April 30, 2021, analysts expect GMS’ EPS and revenue to increase 44.6% and 11%, respectively, year-over-year. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has gained 217.4% over the past year. It is currently trading 3.6% below its 52-week high of $45.94, which it hit on April 16, 2021.
The POWR Ratings are also high on GMS. It has an Overall Rating of A, which translates to a Strong Buy. The stock has a B grade for Value, Growth, Momentum, Stability, and Quality.
Click here to see GMS’ rating for Sentiment. GMS is ranked #2 in the Industrial - Building Materials industry.
Quanex Building Products Corporation (NX)
Based in Houston, Tex., NX provides components for the fenestration industry worldwide. It operates mainly through three segments: North American Fenestration, European Fenestration, and North American Cabinet Components. The company’s offerings include flexible insulating glass spacers, extruded vinyl profiles, window and door screens, precision-formed metal and wood products, cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry.
In February, NX added a 60,000-square-foot screens facility in Allentown, Pennsylvania. The rising demand for its screens in the region also led to an expanded relationship with ISC Group, a leading sales agency serving the fenestration industry. As a result, the company should also generate increasing sales of its screens in the near-term.
NX’s total revenues increased 17.1% year-over-year to $230.15 million for the fiscal year 2021 first quarter, ended January 31, 2021. This can be attributed to increased demand for the company’s products across all product lines and operating segments. Its net income was $7.85 million. Moreover, its adjusted EPS increased 575% year-over-year to $0.27.
For the current quarter, ending April 30, 2021, analysts expect NX’s EPS to be $0.30, which represents a 57.9% year-over-year increase. It surpassed consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 12.3% year-over-year to $955.98 million in fiscal 2021. The stock has rallied 166% over the past year and closed yesterday’s trading session at $27.24. It hit its 52-week high of $27.81 on March 10, 2021.
NX’s POWR Ratings reflect this promising outlook. The company has an overall A rating which translates to Strong Buy in our proprietary ratings system. It has a B grade for Growth, Value, and Momentum.
To see additional POWR Ratings for NX (Stability, Sentiment, and Quality), click here.
NX is ranked #3 in the same industry.
Click here to check out our Infrastructure Sector Report for 2021
CARR shares were trading at $43.38 per share on Thursday morning, up $0.32 (+0.74%). Year-to-date, CARR has gained 15.01%, versus a 11.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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