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About CRH plc
If you ever find yourself in the vicinity of a construction site, whether it is on a long and winding highway or a sleepy intersection in your local municipality, you’ve more than likely been around CRH plc, or at least the goods and services they sell.
Even this early on you probably figured out that this Dublin, Ireland-domiciled materials company maintains most of its customers within the general, wide and vast construction industry. Specifically, this company is in the business of manufacturing, distributing and selling a wide variety of mission critical construction equipment and materials including (but not limited to) asphalt, which is the primary material used in developing roads, concrete, which has a host of building applications (in both senses of the word “building”), along with cement, and other paving materials and aggregates (think limestone, sandstone, etc..) that are used in the development of practically any venue or facility such as an interstate, a school, a shopping mall, a prison, and nearly every other facility that one could walk into or drive on or through, clearly making CRH plc a quasi-infrastructure play.
Now, this tends to be more good than bad, as infrastructure really is the physical backbone of the society we live within today and a critical element of how we live and operate on a daily basis, thus long-term demand isn’t likely subsiding anytime soon, however, even though this might be the case, there is certainly a cyclical element to this company’s line of business(es), as CRH naturally deals in and works with a lot of different commodities and as we have seen in recent years with the price of lumber and its skyrocketing and then gradual decline that followed, CRH has a good amount of hedging to do against these sorts of all too common, essentially uncontrollable fluctuations, as they can instantly eat far too deep into the company’s bottom line.
It is also worth mentioning that CRH is evidently a major player within the overall real estate sector of the economy, and real estate itself has proven itself to be a fairly cyclical industry, as, for instance, if demand for housing wanes, natural demand for CRH and its products will wane as well.
These aren’t necessarily major points of immediate concern, rather, they are points to keep in the back of one’s mind given the inherent added risks of investing in the commodity world.
At the end of the day, CRH plc is a ginormous mission critical construction equipment and materials company and it goes up against the likes of other large competitors such as Builders FirstSource, Cemex, Vulcan Materials and many other small and large regional, national and global players in the space.
In developing a good foundation (which CRH knows all about given the structures they help produce), now it seems like a great time to transition into viewing CRH plc from a more financially motivated, objective lens so as to ultimately determine whether or not this company’s stock (NYSE: CRH) is worth purchasing and holding indefinitely, or, on the other hand, if it is not even worth touching with a ten-foot pole. Or maybe somewhere in the middle.
CRH’s stock financials
First and foremost, CRH plc has a prevailing market capitalization of $46 billion along with an associated share price of $66.34, all while issuing an annual dividend of $4.32 to its shareholder base while simultaneously maintaining a price-to-earnings (P/E) ratio of 17.08.
Given all of this preliminary data, a few things can be discerned, including an incredibly bland fact that CRH plc is quite a large company, with, as a reference, Cemex’s (again, one of CRH’s largest competitors in the cement space) market capitalization currently hangs out at around $11.4 billion, and the company in question’s market capitalization is about four times larger, not to also mention that the company issues quite an attractive annual dividend to its shareholder base, initially implying that CRH can handle business with respect to generating a sufficient amount of cash so as to sufficiently afford to continue paying out and perhaps incrementally raising its dividend, and finally, with its price-to-earnings ratio, it can be thought that the company’s stock (NYSE: CRH) is mildly undervalued given how it measures up to the commonly held fair value benchmark of 20.
It would be sort of silly if we had anything to complain about at this point, however, what we will say is that it isn’t exactly prudent to get in the habit of relying on assumptions in the context of a dividend, so we will try to see whether or not this company can reasonably afford to continue dishing out a dividend of nearly $5 per annum by taking a look at its cash flows and some other metrics as well.
As it relates to the condition of the company’s balance sheet, CRH’s executive team is at the helm of and in charge of around $45.2 billion in terms of total assets along with approximately $23.5 billion in terms of total liabilities, which is quite honestly a far better balance sheet breakdown than we had initially presumed for a commodity and materials-heavy company such as this one, as we had initially braced for the firm to have a much more elevated amount of total liabilities, however, given that it total assets are nearly the amount of its total liabilities, we think this company has a great future ahead of itself in terms reinvesting in its core business operations but also through the continual pursual and acquisition of smaller but value accretive competitors, as CRH has already developed a consistent track record of engaging in meaningful mergers and acquisitions over the years.
And yet it has kept its balance sheet in tip-top shape.
Bravo.
Moving right over to the company’s income statement, CRH’s annual revenues (measured since 2018) have been in a sort of consistent-to-growing phase, starting off at a relative base of nearly $27.5 billion in 2018 and since generally rising on a year-over-year (YOY) basis to its most recently reported and displayed annual revenue figure of $32.7 billion, as reported in late 2022.
What is certainly encouraging is the fact that the company’s revenues hardly budged between and throughout 2019 and 2021, as we had our suspicions that the company would have experienced some revenue softening due to supply chain issues and halting of projects and developments due to COVID-19, however, both of these being massive threats to businesses all around the world hardly put a dent in CRH’s revenues, perhaps due to some tailwinds as a result of the Biden administration’s Build Back Better plan, especially as it relates to its emphasis on building back the infrastructure within the United States in a better fashion, leading to organically heightened demand for CRH and its products and construction capabilities, not to mention that the company likely raised some of its prices in order to offset some of its input costs during this time period, leading to higher sales figures as well.
Additionally, our initial apprehensions surrounding the efficacy of the company’s sizable annual dividend are largely becoming allayed as, according to the figures shown on the company’s cash flow statement, CRH is quite good at turning out cash from its operations, for instance, with its total cash from operations ranging between $2.2 billion (2019) and $4.2 billion, as reported in 2021, all while its net income figures also remained consistent and positive during this same timeframe.
CRH’s stock fundamentals
Regarding the company’s comparable profitability stats with those of the industry’s average, TD Ameritrade’s platform has CRH’s trailing twelve month (TTM) net profit margin listed as being 8.64% to the industry’s respective average of 11.84%, which, considering the fact that this company is absolutely massive and with that, has a huge operational and logistical footprint in and around the United States, it makes a good enough amount of sense that CRH’s TTM net profit margin would trail the industry’s cumulative average given all of the added expenses and costs that come with being as large of a company and operator as CRH, not to mention the fact that many of its competitors are likely smaller, more nimble, regional players, more than likely able to extract a greater amount of profit for that very reason, given just how deep and fragmented the cement and asphalt industries happen to be both inside and outside of the United States.
When it comes to the company’s core TTM returns on the spectrum of assets and investment(s), CRH has evidently stayed in near lockstep with the competition (again, referencing the competition’s listed average as shown on TD Ameritrade’s platform), as, for instance, the company’s TTM return on assets is pegged at 6.44% to the industry’s respective average of 7.08%, while its TTM return on investment is listed as 8.47% to the industry’s average of 8.18%, largely indicating that this company has remained quite competitive with the competition on these fronts, which, of course, is a net positive.
Should you buy CRH stock?
Cement and asphalt are hardly exciting, but CRH, according to the numbers, seemingly has a lot to offer prospective and current shareholders.
With a healthy dividend that it can apparently afford to dish out (given the stellar state of its cash flow statement along with the condition of its balance sheet), a balance sheet for all seasons, a strong annual revenue base that has shown some upside momentum in recent years, a more than competitive TTM net profit margin along with ultra-competitive TTM returns on both assets and investment(s) and a slightly undervalued stock price, CRH is still prone to the cyclicality of infrastructure, materials among other realms, however, we have a lot of assurance that it will weather the bad and the ugly when it does eventually rear up on the materials sectors, again, because its balance sheet affords this to be the case and this truly is a mission critical company that provides goods and services that will be in need indefinitely.
In putting all of this together, we think it is the best move to offer the company’s stock (NYSE: CRH) a “buy” rating, however, it would be wishful thinking to blindly assume that the prevailing bullishness on American infrastructure will continue forever, so please do consider the present cycle we are in as it relates to government infrastructure spend and other related metrics, as a slowing of spend in this realm could and most likely would put a dent in this company’s share price.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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