12 Beneficiaries Of The $1.2T Infrastructure Bill: A Financial Assessment

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With the passage of the Infrastructure Investment and Jobs Act (IIJA) into law last November, allocating $1.2 trillion of spending with $578 billion of new spending over the next decade, investors looking for exposure to infrastructure companies via public equities may want to consider investing in companies that generate a majority of their revenues from infrastructure-related business activities.

The non-tradable  munKNEE Infrastructure Bill Beneficiaries Index tracks the performance of the constituents this week ending July 15th below, in descending order, since the end of May (6 weeks), and YTD with each stock's current Operating Cash Flow, Price-to Earnings (P/E) Ratio, Altman-Z Score, Piotroski F Score, Return on Equity (ROE) and Return on Assets (ROA). This information should help you assess the financial health of each company, how well the company is being managed and the extent to which the company is over- or under-valued compared to its peers. (Definitions of each metric are detailed at the bottom of the article.)

  1. Martin Marietta Materials (MLM): Was UP 2.4% for the week ending July 15th, is DOWN 9.9% since the end of May and is now DOWN 28.5% YTD.
    • As a producer of crushed sand and gravel products, ready-mixed concrete and asphalt, paving products and services, dolomitic lime for the steel and mining industries, and chemical products for use in flame retardants, wastewater treatment and assorted environmental applications MLM should be a major beneficiary.
      • Positive Operating Cash Flow: Yes 
      • Price-to Earnings (P/E) Ratio: 30
      • Altman Z-Score: 2.5  (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 4
      • Return on Equity (ROE): 1.3%
      • Return on Assets (ROA): 0.6%
  2. Vulcan Materials (VMC): Was UP 1.6% for the week ending July 15th, is DOWN 12.4% since the end of May and is now DOWN 21.7% YTD.
    • As America's largest producer of construction aggregates such as crushed stone, sand and gravel, and a major producer of asphalt and cement VMC will benefit from future major infrastructure projects.
      • Positive Operating Cash Flow: Yes 
      • Price-to Earnings (P/E) Ratio: 33
      • Altman Z-Score: 2.7   (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 4 
      • Return on Equity (ROE): 5.6%
      • Return on Assets (ROA): 2.7%
  3. Crown Castle International (CCI): Was UP 1.2% for the week ending July 15th, is DOWN 10.3% since the end of May and is now DOWN 16.9% YTD.
    • As one of America's leading wireless tower real estate investment trusts, CCI should benefit from the expansion of mobile data usage.
      • Positive Operating Cash Flow: Yes 
      • Price-to Earnings (P/E) Ratio: 51
      • Altman Z-Score: 1.4   (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 7
      • Return on Equity (ROE): 20.7%
      • Return on Assets (ROA): 4.3%
  4. Nucor (NUE): Was UP 1.2% for the week ending July 15th, is DOWN 19.9% since the end of May and is now DOWN 3.4% YTD.
    • As the largest domestic steelmaker in North America, the pent-up demand from automakers and other industrial buyers should benefit NUE considerably going forward.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 4
      • Altman Z-Score: 5   (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 8
      • Return on Equity (ROE): 57%
      • Return on Assets (ROA): 31%
  5. United Rentals (URI): Was UP 1.2% for the week ending July 15th, is DOWN 15.3% since the end of May and is now DOWN 24.2% YTD.
    • As the provider of specialty equipment specifically designed for underground work and fluid treatment URI should benefit from business generated by the infrastructure bill.
      • Positive Operating Cash Flow: Yes 
      • Price-to Earnings (P/E) Ratio: 12
      • Altman Z-Score: 2  (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 7
      • Return on Equity (ROE): 24%
      • Return on Assets (ROA): 7%
  6. Eaton Corp. (ETN): Was UP 0.9% for the week ending July 15th, is DOWN 7.7% since the end of May and is now DOWN 25.4% YTD.
    • As a major supplier of electrical components and systems ETN should benefit from the integration of wind and solar farms into the national grid.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 22
      • Altman Z-Score: 3   (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 6
      • Return on Equity (ROE): 13%
      • Return on Assets (ROA): 6%
  7. Brookfield Infrastructure Corporation (BIPC): Was Unchanged for the week ending July 15th, is DOWN 41.0% since the end of May and is now DOWN 38.2% YTD.
    • With operations spanning utilities, transportation, energy, and even data infrastructure, BIPC should benefit enormously from business generated by the infrastructure bill.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: Negative
      • Altman Z-Score: 0.03  (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 7
      • Return on Equity (ROE): Negative
      • Return on Assets (ROA): Negative
  8. Oshkosh Corp. (OSK): Was DOWN 0.5% for the week ending July 15th, is DOWN 13.0% since the end of May and is now DOWN 28.5% YTD.
    • As the manufacturer of specialty trucks used in heavy construction projects as well as cement mixers, truck mounted cranes, "cherry pickers" and other hydraulic lifting systems and being well placed to meet the demand for the electrification of the federal vehicle fleet OSK should prosper going forward.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 18
      • Altman Z-Score: 3   (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 6
      • Return on Equity (ROE): Negative
      • Return on Assets (ROA): Negative
  9. Deere & Company (DE): Was DOWN 2.3% for the week ending July 15th, is DOWN 17.5% since the end of May and is noe DOWN 13.2% YTD.
    • As a major producer of earthmoving and roadbuilding and forestry equipment DE should see an increased demand for its machinery.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 15
      • Altman Z-Score: 3  (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 6 
      • Return on Equity (ROE): 46%
      • Return on Assets (ROA): 10%
  10. Caterpillar (CAT): Was DOWN 3.2% for the week ending July 15th, is DOWN 20.2% since the end of May and is now DOWN 16.1% YTD.
    •  As the manufacturer of asphalt pavers, compactors, excavators, pipe layers, backhoes, etc., CAT will benefit from future major infrastructure projects.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 14
      • Altman Z-Score: 3  (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 6
      • Return on Equity (ROE): 37%
      • Return on Assets (ROA): 7.5%
  11. Freeport-McMoRan (FCX): Was DOWN 7.3% for the week ending July 15th, is DOWN 34.9% since the end of May and is now DOWN 38.1% YTD.
    • Given that 43% of all copper mined is used in building construction, with another 20% used in transportation equipment, FCX should be a major benefactor.
      • Positive Operating Cash Flow: Yes
      • Price-to Earnings (P/E) Ratio: 7
      • Altman Z-Score: 2 (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 9
      • Return on Equity (ROE): 42%
      • Return on Assets (ROA): 13%
  12. ChargePoint Holdings (CHPT): Was DOWN 13.5% for the week ending July 15th, is DOWN 14.0% since the end of May and is now DOWN 39.3% YTD.
    • With the expected building of 250,00 customized charging stations CHPT should benefit considerably from their involvement.
      • Positive Operating Cash Flow: No
      • Price-to Earnings (P/E) Ratio: Negative
      • Altman Z-Score: 3 (less than 1% chance of financial distress in the next 2 years)
      • Piotroski F Score: 3
      • Return on Equity (ROE): Negative
      • Return on Assets (ROA): Negative

Hopefully the above information will help you assess the financial health of each company, how well the company is being managed and the extent to which the company is over- or under-valued compared to its peers.


Definitions:

Operating Cash Flow:

  • Is money involved directly with the production and sale of goods from ordinary operations or, in other words, money coming in through sales minus operating expenses.
  • Without positive operating cash flow a business doesn’t survive and, as such, is the best measure of a company’s financial and operational health.

Price/Earnings (P/E) Ratio:

  • Is a measure a company's share price to its earnings per share and has the most value when compared against similar companies in the same industry or for a single company across a period of time.
  • Helps one determine whether a stock is overvalued (a high P/E) or undervalued (a low P/E) and can also be benchmarked against other stocks in the same industry or against the broader market.

The Altman-Z Score:

  • Is a numerical measurement used to predict the chances of a business going bankrupt in the next two years and has an accuracy that ranges from 82% and 94%.
  • Is based on five financial ratios - profitability, leverage, liquidity, solvency, and activity. 

The Piotroski F Score:

  • Is a back-tested strategy that rates how strong the financial fundamentals are for a value stock and in back-testing of the system against the market between 1976 and 1996 the system it would have beaten the average return on the stock market by 13.4%.
  • A score of 0-3 indicates that the company has weak fundamentals while a score of 8-9 indicates a company with powerful fundamentals that are most likely to keep performing well in the future.

Return on Equity (ROE)

  • Is a measure of how many dollars of profit are generated as a percentage of each dollar of shareholder's equity and, as such, is a metric of how well the company utilizes its equity to generate profits.
  • The higher the ROE, the better a company is at converting its equity financing into profits.

Return on Assets (ROA)

  • Is a measure that indicates how profitable a company's net income is as a percentage of its total assets and, as such, factors in a company's debt while return on equity does not.
  • A higher ROA means a company is more efficient and productive at managing its balance sheet to generate profits while a lower ROA indicates there is room for improvement.

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