Can Cement Rise To The Top? (CX)
President Obama announced yesterday that the federal government would spend $50 billion over 6 years to help repair the nation's infrastructure, as part of a broader package to spur economic growth.
As part of the package, it would rebuild 150,000 miles of road, lay and maintain 4,000 miles of rail track, restore 150 miles of runways and advance a next-generation air-traffic control system. It would also start a national infrastructure bank, which would finance projects for the betterment of the company.
Seeing as we need steel, cement, and asphalt for these projects, Cemex (NYSE: CX) stands to benefit from this package in a big way.
Looking at a business summary for Cemex, it tells you that CX should reap the benefits of any increased infrastructure spending. The summary goes on to say, "CEMEX, S.A.B. de C.V., through its subsidiaries, engages in the production, marketing, distribution, and sale of cement, ready-mix concrete, aggregates, and other construction materials."
Cemex couldn't be in any more of a sweet spot, should this spending become law.
The company continues to become more lean and agile, as it pays down debt. Recently, it sold assets in Kentucky to Bluegrass Materials Company, LLC, a subsidiary of Panadero Aggregates Holdings LLC, for $90 million.
The company is by no means without its drawbacks, but I believe these are outweighed by the benefits.
For starters, the company is trading at a robust 50 times forward earnings, but I would expect this to come down as the company wins more contracts, and more spending around the world is announced to repair crumbling infrastructure.
It competes worldwide with Lafarge, and HeidelbergCement AG. These companies are much larger than Cemex, and tend to get more contracts than Cemex does.
The 12 analysts who cover the stock project Cemex to grow its earnings by 61.66% over the next 3-5 years. These analysts have an average price target of $13 per share, far higher than where shares are trading.
If Cemex could achieve even half that growth over the next few years, shares will be far higher than where they are currently trading, making Cemex a cheap bet on the proposed infrastructure spending.
Investors would be wise to wait for a little pullback in shares of Cemex, as the stock has enjoyed a nice run in shares as of late. Increased optimism in the home builder sector has caused the run up in shares.
As long as the company continues to pair down its massive $16.6 billion debt (recorded at the beginning of fiscal year 2010), shares of Cemex should be able to trend higher and take advantage of any government spending, and a rebound in the economic recovery.
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