Kathryn I. Thompson / 615-891-6206 / firstname.lastname@example.org
David C. Wells, Jr. / 615-891-6207 / email@example.com
Building Materials – Q4’09 Construction Estimators Survey
RELEVANT COMPANIES: TRG SNAPSHOT:
We recently surveyed 30+ project estimators at major construction
Ticker Price Rating Market Short firms across the U.S. Within a construction firm, the project
Cap Interest estimator is responsible for bid preparation. As such, we believe
(% of estimators are well positioned to comment on project margins, raw
float) materials pricing, and overall bidding trends.
ASTE $24.77 Buy $563.2M 15.9%
BECN $15.45 Hold $694.4M 12.7% KEY POINTS:
CAT $57.45 Hold $36.51B 5.6%
EXP $27.08 Hold $1.19B 11.4% The following were key themes from our construction
GVA $30.26 Buy $1.14B 11.6% estimator survey:
MLM $84.03 Hold $3.79B 18.9% o 80% of those surveyed reported their end market
MTW $9.90 Buy $1.29B 9.2% mix of revenues has shifted toward public
STRL $16.78 Buy $230.6M 8.5%
construction over the past 12-18 months.
TEX $18.98 Hold $1.88B 10.5%
o Bid activity mixed.
TXI $33.71 Hold $933.9M 26.3%
USG $13.83 Hold $1.37B 20.0% o Stimulus work gaining importance.
VMC $48.69 Buy $5.39B 16.0% o Margins remain under pressure.
o Raw materials pricing mostly modestly improved.
o Equipment purchases unlikely in the next 6-12 mo.
Please see Appendix 1 for a complete
comp table. TRG opinion. Our Q4’09 Construction Estimator survey
suggests competitive bidding activity for construction
companies remains high. Reflective of our November 2009
FOR DISCLOSURES, PLEASE REFER TO state DOT survey (published 11/24/09), construction
THE IMPORTANT DISCLOSURES estimators report stimulus dollars have started to flow. That
SECTION ON PAGE 7 OF THIS REPORT. said, the 2010 outlook for construction companies is
somewhat mixed. While several noted stimulus and public
construction work will provide some much-needed support, a
handful are uncertain about 2010. Larger, more financially
sound E&C companies such as GVA and STRL are better
TRG will be in Washington, D.C. positioned in 2010. GVA is trading at 3x cash and STRL at
this week tracking the progress of a 2x cash. GVA is trading at 4.6x 2010 EV/EBITDA and 3.5x
potential jobs bill and a transportation recovery EV/EBITDA (2011) and STRL is an even more
bill extension. modest at 3.7x 2010 EV/EBITDA and 3.2x 2011 EV/EBITDA.
It is our sense that we are at or near the bottom for E&C
. companies, and as the weaker players struggle to survive
during the winter seasonal slowdown, the more financially
sound players will emerge as the real winners by late spring
and summer. We remain focused on VMC, GVA, STRL, and
ASTE, as we believe these have more upside potential
due to their end market and geographic exposure.
Figure 1. Geographic and End-Market KEY DETAILS:
In order to get a better sense of the current public and non-
Geographic area residential construction environment, we recently surveyed
served? 30+ project estimators at major construction firms across
Midwest 10.8% the U.S. Within a construction firm, the project estimator is
responsible for bid preparation. As such, we believe estimators
are well positioned to comment on project margins, raw materials
South 10.8% pricing, and overall bidding trends. Figure 1 outlines the
West 29.7% weighting of end market responses, and Figure 2 highlights key
Other 32.4% state exposure for our building materials coverage.
Sources: Industry Sources; TRG Research
Not surprisingly, 80% of those surveyed reported that their
Figure 2. Revenues by End Market end market mix of revenues has changed over the past 12-18
VMC MLM TXI EXP GVA STRL months. Relevant quotes regarding the change in mix shift
California 20% 20% < 5% 38% includes the following:
Florida 20% 6%
30%- at least
Texas 7%-8% 19% 80%
North Carolina 19%
Shift from mostly privately funded to publically or
Georgia 9%-10% 9% institutionally funded work. (National)
No private work available. (Northeast)
Louisiana 5% We have been heavy in Public for some time and were
South Carolina 5%
Note: FL, CA, TX, AZ are CX’s 4 largest U.S. markets
not impacted heavily by the Residential & Non-
Sources: Company Reports; TRG Research Residential collapse. (West)
Work is much higher percentage public. Residential now
Figure 3. Construction Bidding Activity nearly nothing. (West)
How is your bidding The private market is very slow, the public works has
activity this year vs.
last? Up Flat Down
been steadier but more 'abrupt'. (West)
41.9% 22.6% 35.5% Stimulus package is working. (Northeast, Midwest,
Sources: Industry Sources; TRG Research South)
More public, less private, except medical still strong.
Bidding mostly public projects these days. (South)
Minimal Resort - more public money projects.
Bid activity mixed
Our survey results were mixed regarding bidding activity, with
41.9% of respondents indicating “up” YOY bidding levels and
conversely 35.5% reporting “down” levels of bidding activity (see
Figure 3). Bidding activity has increased due to a lack of
commercial and residential projections, with many contractors
bidding on any project just to stay in business. We also expect
the increase is driven by competition for stimulus infrastructure
Stimulus work gaining importance
51.6% of survey respondents have bid on stimulus projects.
Stimulus work as a percentage of total business has ranged
anywhere from 5% up to 80%. Of those firms surveyed that have
bid on stimulus work, approximately 50% reported stimulus
projects account for 10%+ of total business.
Figure 4. Project Margins Margins remain under pressure
Are you bidding
projects above, below,
Margins under pressure. 73.3% of survey respondents
or in-line with normal indicated that projects are being bid with margins below normal
margins? Above Below In-line (see Figure 4). The drivers for lowered margins were primarily
0.0% 73.3% 26.7% increased competition for bidding, as well as the need for
Sources: Industry Sources; TRG Research additional work to keep staff employed. Relevant quotes
regarding bidding activity and reasons for margin pressures
include the following:
Primary drive is to win the project. Make up is in “change
Much more competition than normal. (National)
I am bidding very low just to get work and will continue to
do so to keep working. It will be a year or more before
margins improve. (South)
Competition is bidding projects well below cost to
Competition is keeping prices low. We are counting on
our field operations to build the projects for costs below
their budget. (West)
Competition: We have set a company goal to increase
as-build gross profit margins and gear our Operations
around making that happen through preplanning to
increase productivity and good Project Management.
Even strong competitors are bidding at very small
margins just for cash flow. (South)
Competitors are bidding to stay in business (minimal
equipment or minimal overhead). We are trying to make
it up in efficiencies and productions. (West)
Lowering margins to stay competitive. Making up margin
by cutting overhead expenses. (West)
Competition is the driver. If we don't cut prices, we will
not be anywhere near competitive. Making up the margin
by buying less equipment, cutting salaries, cutting
employee benefits, less profit. (West)
74.2% of construction estimators surveyed do not expect
margins to improve in 2010. Relevant quotes include the
There is still too much competition for too little work in
our market place. The influx of Residential & Non-
Residential contractors into Public should keep prices
Apparently there is getting to be more requests for what I
I am bidding very low just to get work and will continue to
do so to keep working. It will be a year or more before
margins improve. (South)
Figure 5. Raw Materials Pricing Raw materials mostly modestly improved
How are raw materials
Figure 5 demonstrates that aggregate and concrete pricing is
prices trending? Up Flat Down
Aggregate 24.0% 60.0% 16.0%
holding flattish to up for construction firms. We found it interesting
Concrete 30.4% 43.5% 26.1%
that 84.0% of respondents reported flat to up aggregate pricing
Steel 36.4% 27.3% 36.4% trends vs. 81.5% in our August survey. Interestingly, 73.9% of
Sources: Industry Sources; TRG Research respondents reported flat to up concrete pricing. Steel pricing
trends were mixed. Only 16.1% of those surveyed plan on
purchasing equipment over the next 6-12 months. TRG’s most
recent state DOT survey published on 11/24/09 confirms that
states are seeing record obligations as 2009 comes to a close,
which will lead to record allocations (i.e., dollars spent) in 2010.
Overall, we expect to see some volume improvement in 2010
and pricing should follow.
Direct quotes regarding 2010 outlook include the following:
Public sector work will increase. Institutional work will
begin to pick up in the later part of 2010 and private work
will lag behind as financing private work is still an issue.
It seems that our Public Agencies will have funding for
2010 projects and we are carrying a good backlog into
the year. We will maintain our volume with lower
margins. 2011 seems extremely uncertain. (West)
Depending on an increase in employment, I look for a
slow steady improvement. Just don't panic. (National)
Going to be a tough year if we don't pick up some more
work. The public sector and health care seem to be the
only active construction markets. If the private sector
starts to build again, that would turn things around.
Better than 2009, flat compared to 2008. (Northeast)
We are looking for 2010 to be a down year unless the
private market improves. (West)
We are expecting 2010 to be worse. (Midwest)
2010 will be a tough year. I expect to see some weaker
subcontractors and general contractors to go out of
Hoping for more stimulus projects. We are hoping that
the huge inflow of projects this fall has not exhaused the
projects that were ready for bid. (West)
Economy should stabilize and work should pick up.
Continue to be slow throughout 2010. (West)
Our Q4’09 Construction Estimator survey suggests competitive
bidding activity for construction companies remains high.
Reflective of our November 2009 state DOT survey (published
11/24/09), construction estimators report stimulus dollars have
started to flow, and record obligations in 2009 translate to record
allocations (i.e., money spent) in 2010. That said, the 2010
outlook for construction companies is somewhat mixed. While
several noted stimulus and public construction work will provide
some much-needed support, a handful were uncertain about
2010. It is our sense that larger, more financially sound
engineering & constructions (E&C) companies, such as Granite
Construction (GVA – Buy) and Sterling Construction (STRL –
Buy) are better positioned in 2010. GVA is trading at 3x cash and
STRL at 2x cash. GVA is trading at 4.6x 2010 EV/EBITDA and
3.5x recovery EV/EBITDA (2011) and STRL is an even more
modest at 3.7x 2010 EV/EBITDA and 3.2x 2011 EV/EBITDA.
Overall, it is our sense that we are at or near the bottom for E&C
companies, and as weaker players struggle to survive during the
winter seasonal slowdown, the more financially sound players will
emerge as the real winners by late spring and summer.
We were also encouraged by feedback regarding materials
pricing trends. A great deal of focus has been placed on
aggregate pricing, and our Q4’09 construction estimator survey
suggests the worse may be behind us. We also noted relatively
better concrete pricing trends vs. our expectations. That said,
TRG remains focused on volumes, as volume trends lead pricing
trends. Our recent DOT survey and ARRA funds flow research
confirm that public construction volumes will be up in 2010.
Not to beat a dead horse, but we are compelled again to outline
our view perspective on D.C. and potential implications for TRG’s
industrials coverage. We believe the House will take up a jobs
creation bill in early December. We believe the Senate will pass
a six-month extension to highway spending in December that will
restore funding to pre-rescission levels and begin debating a
House passed job creation bill in early 2010. We understand
infrastructure spending will be included in any bill passed on job
creation and funding will be in addition to the six-month spending
extension. If we are correct, all stocks in our coverage universe
will rise. As we have published in several recent reports, our top
picks in the group are VMC, GVA, STRL, and ASTE. We
expect MLM, TXI, and EXP will also rise. However, we
believe VMC, GVA, STRL, and ASTE have more upside
potential due to their end market and geographic exposure.
APPENDIX 1 – BUILDING MATERIALS COMP TABLE:
APPENDIX 2 – CONSTRUCTION EQUIPMENT COMP TABLE:
The analyst(s) principally responsible for the preparation of this research report certify that the views expressed in this
research report accurately reflect his/her (their) personal views about the subject security (ies) or issuer(s) and that his/her
(their) compensation was not, is not, or will not be directly or indirectly related to the specific recommendations or views
contained in this research report.
The analyst does not serve as an officer, director, or advisory board member of the subject company.
The analyst or a member of the analyst's household does not have a long position in shares or derivatives of the
The analyst or a member of the analyst's household does not have a short position in shares or derivatives of the
Pulse has not acted as an investment banker for the company(s) mentioned in this report in the past or will solicit in the
Receipt of Compensation:
The research analyst responsible for preparation of this report has not received any compensation from the subject
company in the past 12 months.
Pulse Trading, Inc., Member SIPC, FINRA, (the “Firm”) does not make markets in securities. The firm does not perform or
seek to perform investment-banking services for these companies in the future. Analysts receive no direct compensation
in connection with the firm’s investment banking business. All Pulse employees, including the analyst(s) responsible for
preparing this research report, may be eligible to receive non-product or service specific monetary bonus compensation
that is based upon various factors, including total revenues of Pulse and its affiliates as well as a portion of the proceeds
from a broad pool of investment vehicles consisting of components of the compensation generated by directors, analysts
or employees and may effect transactions in and have long or short positions in the securities (options or warrants with
respect thereto) mentioned herein.
Analysts are not eligible for bonus compensation.
Although the statements of fact in this report have been obtained from and are based upon recognized statistical services,
issuer reports or communications, or other sources that the firm believes to be reliable, we cannot guarantee their
All opinions and estimates included constitute the analyst’s judgment as of the date of this report and are subject to
change without notice. The firm may effect transactions as agent in the securities mentioned herein.
This report is offered for information purposes only, and does not constitute an offer or solicitation to buy or sell any
securities discussed herein in any jurisdiction where such would be prohibited.
Additional information available upon request.
Thompson Research Group Ratings System:
The Thompson Research Group Stock Rating System consists of three separate ratings: Buy, Hold and Sell.
The appropriate rating is based off the estimated total return of the stock over a forward 12 month period, including both
share appreciation and anticipated dividends.
Buy rated stocks included a published 12-month price target. The price target represents the analyst’s best estimate of the
market price in a 12 month period. Thompson Research Group cautions that price targets are based on assumptions
related to the company, industry and investor climate. As such, price targets remain highly subjective.
The definition of each rating is as follows:
Buy: estimated total return potential greater than or equal to 10%
Hold: estimated total return potential greater than or equal to 0% and less than 10%
Sell: estimated total return potential less than 0%
NR: Not Rated
Stocks rated Buy are required to have a published 12-month price target, while it is not required on stocks rated Hold and
Date Action Price
10/14/09 Buy $26.35
Date Action Price Date Action Price
9/01/09 Buy $32.10 9/01/09 Buy $16.10
Date Action Price
10/14/09 Buy $10.02
Date Action Price
9/01/09 Buy $50.04
Additional Significant Risk Factors and Investment Considerations
The securities or trading strategies discussed in this report may not be suitable for some investors. Investors must
independently evaluate each issuer, security, or instrument discussed in this report and consult independent advisors
1. Past Performance is not indicative of future results.
2. Market Risk: Securities may decline in value due to factors affecting securities markets generally or particular
industries. The value of a security may be worth less than the original investment.
3. Concentration risk: Investing a substantial portion of assets in securities within a single industry or sector of the
economy may be subject to greater price volatility or adversely affected by the performance of securities in that
particular sector or industry.
4. Leverage Risk: Fluctuations in interest rates on borrowings or the dividend rates on preferred shares as a result of
changes in short-term interest rates may reduce the return to common shareholders or result in fluctuations in the
dividends paid on the common shares. There is no assurance that a leverage strategy will be successful.
5. Foreign Investment Risk: Investment in foreign securities (both governmental and corporate) may involve a high
degree of risk. In regards to debt securities, such risks may impair the timely payment of principal and/or interest.
6. Short selling involves an inordinate amount of risk including the theoretical potential for unlimited losses and losses
that can greatly exceed the principal amount invested. In contrast, the potential gain from short selling is generally
limited to the principal amount invested. Short sellers can have their stock called away by the lender of the shares
shorted, subjecting the short seller to incremental risk. Short sellers by definition must borrow shares, subjecting
short sellers to margin risk. The risks cited here with respect to short selling are not all inclusive and investors should
consult with their independent advisors prior to engaging in any recommended short selling strategies, including, if
applicable, the short sale recommended in this report.
The risks detailed above are not inclusive. Other significant risk factors not identified here may be equally or more
important to any particular investor in terms of assessing the overall risks associated with these securities.
The information contained herein is illustrative and is not intended to predict actual results, which may differ substantially
from those reflected herein.
Investors should consider this report as only a single factor in making their investment decision.
Copyright © Thompson Research Group, LLC. 2009. All rights reserved. All material presented in this document,
unless specifically indicated otherwise, is under copyright to Thompson Research Group, LLC. None of the material, nor
its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the
prior express written permission of Thompson Research Group, LLC.