Market Overview

3 Stocks D.A. Davidson Analysts Just Upgraded


Brent Thielman and JB Groh of D.A. Davidson were busy on Monday with three separate research reports in which shares of Vulcan Materials Company (NYSE: VMC), Summit Materials Inc (NYSE: SUM) and KLX Inc (NASDAQ: KLXI) were all upgraded.

Vulcan Materials: Solid Fundamentals

Brent Thielman upgraded shares of Vulcan Materials to Neutral from Underperform with a price target raised to $106 from a previous $90 as a cautious stance no longer applies following the company's second-quarter print.

According to Thielman, Vulcan's second-quarter report (and recent developments in the global market) demonstrates it has momentum in heavy-side materials industry pricing which is further supported by improving trends in domestic construction activity. As such, market momentum is shifting "increasingly" in Vulcan's favor.

Thielman also noted that a focus on local markets (as opposed to global markets that come with increased risk) further enhances the company's "appeal" with investors.

However, Thielman's new price target reflects an 8x multiple on the company's EBITDA target of around $2 billion at normal demand levels. The analyst noted that the multiple is below the stock's long-term average as the timing (if at all) of demand normalization remains "elusive."

Summit Materials: Improved Outlook

Thielman also upgraded shares of Summit Materials to Buy from Neutral with a price target raised to $32 from a previous $28 following the company's mixed second-quarter print that was driven by "unusually disruptive" weather.

Thielman noted the company earned $0.32 per share in the quarter (exclusive of debt financing costs) which was better than the $0.24 he estimated. EBITDA (before various adjustments) of $69.7 million was short of the $76.0 million expected but the company boosted its full-year EBITDA guidance to a range of $265-$290 million (from $235-$255 million) as the company is a domestic-focused supplier to local markets and now has "meaningful" influence over pricing for key commodities in its portfolio.

Thielman also added that Summit's M&A strategy continues to "support significant gains" despite adverse weather in several key locations. At the same time, overall organic growth rose 3 percent (although more moderate versus prior quarters) while the company saw "impressive" organic pricing improvements across all categories.

Bottom line, Summit's momentum should be "appealing" to investors within the "escalating volatility" commodity market.

KLX: Trading At A Discount Versus Peers

JB Groh upgraded shares of KLX to Buy from Neutral with an unchanged $48 price target as the stock's current price implies a value of the Aerospace Solutions Group (ASG) business at approximately 7.5x EBITDA (which is a 30 percent discount to its closet peer) and ascribes no value to the Energy Service Group (ESG) segment.

Groh said that the while the ESG segment only contributes 20 percent of total revenue, the market has been placing "too much emphasis" on a "small portion" of the company. The analyst added that while the segment will likely continue generating operating losses this is already factored into the stock. In fact, the company can use its cash flow generation from other businesses to complete deals over the next two years at a time when industry multiples are "depressed."

On the other hand, ASG is expected to continue seeing mid-single digit growth given strong commercial aircraft deliveries and a rebound in the aftermarket as planes delivered during 2009 to 2011 approach "major" maintenance intervals.

Bottom line, the company has "ample" liquidity with $429 million cash, a $750 million revolver (with no maturity until 2022) and a $250 million stock repurchase authorization that could be used to support the stock in the short term.

Latest Ratings for KLXI

May 2018DowngradesBuyHold
Mar 2018UpgradesHoldBuy
Jan 2017Initiates Coverage OnBuy

View More Analyst Ratings for KLXI
View the Latest Analyst Ratings

Posted-In: Brent Thielman Commodities D.A. Davidson JB GrohAnalyst Color Long Ideas Analyst Ratings Trading Ideas


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