BUSINESS
Summit Materials, Inc., through its subsidiaries, produces and sells construction materials and related downstream products for the public infrastructure, and residential and nonresidential end markets. It operates through three segments: West, East, and Cement. The company’s products include aggregates, cement, ready-mix concrete, asphalt paving mixes, and concrete products, as well as plastics components. It also provides asphalt paving and related services to the private and public infrastructure sectors. In addition, the company operates municipal waste, construction, and demolition debris landfills; and liquid asphalt terminals. It has operations in the United States; and in British Columbia, Canada. The company was founded in 2009 and is headquartered in Denver, Colorado.
INVESTMENT RATING
SUM’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
Summit Materials has a current Value Trend Rating of C (Neutral).
This rating combines consistent signals from two proprietary PTR measures of a stock’s attractiveness. Summit Materials has a neutral Appreciation Score of 41 and a slightly positive Power Rating of 62, and the Neutral Value Trend Rating results.
Summit Materials’ stock is selling below targeted value. The current stock price of $37.63 compares to targeted value 12 months forward of $44.
This neutral appreciation potential results in an appreciation score of 41 (59% of the universe has greater appreciation potential.)
Summit Materials has a Power Rating of 62. (This slightly positive Power Rating indicates that SUM’s chances of achieving favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: the recent trend in SUM’s earnings estimates has been favorable; and recent price action has been slightly favorable. An offsetting factor is the Mining, Quarry Nonmetal Minerals comparison group is in an extremely unfavorable position currently.
INVESTMENT PROFILE
SUM’s financial strength is average. Financial strength rating is 54.
Relative to the S&P 500 Composite, Summit Materials Inc has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that SUM is higher risk. High expected growth is a positive for SUM. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, and high stock price volatility. SUM’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. SUM has unusually low market capitalization.
CURRENT SIGNALS
Summit Materials’ current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
Summit Materials’ current technical position is very strong. The stock price is in a 3.0 month up move. The stock has appreciated 29.4% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
Summit Materials Inc (NYSE: SUM) has reported E.P.S. of $0.02 for its fourth fiscal quarter (ending December 31) versus $0.25 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $2.40 compared to $2.27 a year ago.
Summit Materials Inc (NYSE: SUM) stock closed at $37.63 on 2/14/24 after an increase of 1.7%. Moreover, above average trading volume at 137% of normal accompanied the advance. The stock has risen 3.6% during the last week and has been strong relative to the market over the last nine months.
CASH FLOW
In 2022, Summit Materials generated a very significant increase in cash of +$139.5 million (+37%). Sources of cash were much larger than uses. Cash generated from 2022 EBITDA totaled +$449.1 million. Non-operating sources contributed +$186.0 million (+41% of EBITDA). Cash taxes consumed -$86.7 million (-19% of EBITDA). Re-investment in the business amounted to -$120.9 million (-27% of EBITDA). On a net basis, debt investors withdrew -$201.5 million (-45% of EBITDA) while equity investors pulled out -$86.4 million (-19% of EBITDA).
Summit Materials’ Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Summit Materials Peer Group. (Since 2019 Non-operating Income, %EBITDA has sharply accelerated.) In most years, Summit Materials was in the second quartile and top quartile. Currently, Summit Materials is upper quartile at +41% of EBITDA (+$186.0 million).
Summit Materials’ Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Summit Materials Peer Group. (Since 2020 Cash Taxes, %EBITDA has accelerated sharply.) In most years, Summit Materials was in the top quartile and second quartile. Currently, Summit Materials is at the lower quartile at -19% of EBITDA (-$86.7 million).
Summit Materials’ Business Re-investment, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Summit Materials Peer Group. (Since 2020 Business Re-investment, %EBITDA has sharply decelerated.) In most years, Summit Materials was in the third quartile and top quartile. Currently, Summit Materials is slightly above median at -27% of EBITDA (-$120.9 million).
Summit Materials’ Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Summit Materials Peer Group. In most years, Summit Materials was in the top quartile and lower quartile. Currently, Summit Materials is below median at -45% of EBITDA (-$201.5 million).
Summit Materials’ Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Summit Materials Peer Group. In most years, Summit Materials was in the third quartile and second quartile. Currently, Summit Materials is slightly below median at -19% of EBITDA (-$86.4 million).
Summit Materials’ Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Summit Materials Peer Group. In most years, Summit Materials was in the top quartile and third quartile. Currently, Summit Materials is slightly above median at +31% of EBITDA (+$139.5 million).
Summit Materials’ Cash, %Revenue has exhibited a minor overall uptrend over the period. This improvement was accompanied by a similar trend for the Summit Materials Peer Group. In most years, Summit Materials was in the third quartile and lower quartile. Currently, Summit Materials is below median at +22%.
PROFITABILITY
Summit Materials’ return on equity has improved very significantly since 2015. The current level of 13.6% is 3.38X the low for the period and is at the high.
A major analytical focus for SUM is a very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors.
The productivity of Summit Materials’ assets declined over the full period 2013-2023: asset turnover has experienced a minor downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend that decelerated very sharply from the 2019 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Summit Materials’ return on equity is at the upper quartile (13.6%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is upper quartile (8.4%) reflecting asset turnover that is at median (0.58X) and pretax margin at the upper quartile (14.7%).
Tax “keep” rate (income tax management) is above median (85.0%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is above median (1.90X).
GROWTH RATES
There are no significant differences between Summit Materials’ longer term growth and growth in recent years.
Summit Materials’ historical income statement and balance sheet growth are not available.
Annual revenue growth has been -0.1% per year. (More recently it has been 3.5%.)
Total asset growth has been -0.1% per year.
Annual E.P.S. growth has been 17.3% per year.
Equity growth has been 8.0% per year.
No consensus growth rate forecast is available for Summit Materials.
Relative to the Summit Materials Peer Group, Summit Materials’ historical growth measures are generally second quartile. Equity growth (8.0%) has been upper quartile. Total asset growth (-0.1%) has been above median. Revenue growth (-0.1%) has been slightly above median. E.P.S. growth (17.3%) has been above median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Summit Materials’ stock price performance has been variable and below market. Between March, 2015 and February, 2024, Summit Materials’ stock price rose +80%; relative to the market, this was a -26% loss. Significant price moves during the period: 1) July, 2020 – December, 2021: +173%; 2) September, 2017 – December, 2018: -62%; and 3) January, 2016 – September, 2017: +104%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 10.1% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 10.1% is above median relative to Summit Materials Inc Peer Group.
Current 5-year total return performance of 19.2% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 19.2% relative to S&P 500 Composite, Summit Materials’ total return performance is upper quartile relative to Summit Materials Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, SUM’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is slightly above median. Ratio of enterprise value/revenue is slightly below median. Price/equity ratio is slightly below median. Price/earnings ratio is below median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is below median.
Relative to Summit Materials Peer Group, SUM’s overall valuation is normal. The highest factor, the price/equity ratio, is above median. Ratio of enterprise value/assets is above median. Ratio of enterprise value/revenue is slightly above median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is at the lower quartile.
Summit Materials has a minor value gap compared to the median. For SUM to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 3.23X to 3.06X. If SUM’s ratio of enterprise value/revenue were to fall to 3.06X, its stock price would be lower by $-2 to $35.
For SUM to achieve upper quartile valuation relative to the Summit Materials Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 3.23X to 3.92X. If SUM’s ratio of enterprise value/revenue were to rise to 3.92X, its stock price would increase by $10 from the current level of $38.
VALUE TARGETS
SUM’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
Summit Materials’ current Price Target of $43 represents a +15% change from the current price of $37.63.
This neutral appreciation potential results in an appreciation score of 41 (59% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 41, the moderately high Power Rating of 62 contributes to an Value Trend Rating of C.
Summit Materials’ current Price Target is $43 (+9% from the 2022 Target of $40 and +15% from the 02/14/24 price of $37.63). This slight rise in the Target is the result of a +4% increase in the equity base and a +6% increase in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 9.7% — slightly above our recent forecasts. Forecasted return on equity exhibited a modest, erratic decline between 2014 and 2022. The current forecast is well above the 2019 low of 4%.
PTR’s growth forecast is 6.0% — above our recent forecasts. Forecasted growth exhibited a modest, erratic increase between 2014 and 2022. The current forecast is well above the 2019 low of 0%.
PTR’s cost of equity forecast is 5.8% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2022. The current forecast is below the 2015 peak of 8.2%.
At Summit Materials’ current price of $37.63, investors are placing a positive value of $8 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 11.0% per year, and a return on equity of 7.1% versus a cost of equity of 5.0%.
PTR’s 2024 Price Target of $43 is based on these forecasts and reflects an estimated value of existing assets of $34 and a value of future investments of $10.
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