iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
21,907 Blog Posts

Position Update: VMC

Here’s the bear case for Vulcan Materials Company [[VMC]] :

The company is a producer of asphalt, concrete and cement in a depressed U.S. construction environment.

Major inputs include diesel fuel and liquid asphalt. Both have soared in recent months.

In addition, the company levered up into a downturn and acquired Florida Rock (think Florida real estate), effectively making matters worse. Not only is Florida Rock a drag on them, from an operating standpoint, but they are laden with debt because of it. Currently, VMC has over $3.5 billion in debt.

VMC will get hit hard when municipalities cease their infrastructure projects, due to high material cost. The fact of the matter is, most municipalities are unprepared for the inflationary storm, about to hit their tax payers. Most, if not all, pegged their budgets to the erroneous cpi index, which does not reflect the mind numbing (double digit) increases in raw materials. In short, cities and states will be forced to delay or cancel numerous projects. That will be a huge blow to VMC.

via VMC‘s earnings report:

Our earnings outlook reflects a prolonged downturn in residential construction, weakness in non-residential and highway construction activity and energy-related costs remaining at the current high levels. Leading indicators such as contract awards weakened in most construction categories in the second quarter. We now estimate full year aggregates shipments, including Florida Rock operations for the full year, to be down 2 to 5 percent versus the prior year.

During this time of weaker demand, our focus is on those aspects of the business we can control. During the first half of this year, we have reduced operating hours, maintained relatively flat unit variable production costs excluding energy-related costs and decreased cash fixed costs. We will continue aggressively managing costs in all areas. We expect higher selling prices for our products to help offset the earnings effects of lower volumes and higher energy-related costs. For aggregates, we continue to expect full year price improvement of approximately 8 percent.

Regarding valuation:

Their peers include Martin Marietta Materials, Inc. [[MLM]] , Texas Industries, Inc. [[TXI]] and Eagle Materials, Inc. [[EXP]] .

VMC is a repeat offender of missing earnings estimates, as demand and cost controls hit the company hard from every angle.

Their new guidance is for a profit range of $2.85-$3.25. However, I am very skeptical they can even hit that bottom number. I do not believe they are anticipating a drastic slowdown in municipal spending.

However, let’s say they hit $2.85. At current levels, that gives them a PE of 24. The average PE for their peers is 15x. However, that’s assuming they will hit their numbers too, which they will not.

At 15x 2009 earnings, VMC should be trading at $42. If their numbers come in short, due to a further economic slowdown, I believe the stock should trade 10x 2009 earnings or $28.

The only way VMC comes out smelling like roses is if residential real estate upticks, diesel fuel and liquid asphalt drop or the government implements an “infrastructure bailout,” allocating money to the construction of highways, bridges and tunnels.

In short, I believe none of that will occur and the stock is 36% overvalued, at current levels. With 20 million shares sold short or 18% of the float, expect large swings in the stock. Nonetheless, there is no fucking way this stock deserves to be up today, recovering from an early 6 point deficit.

Disclaimer: I am short egregious amounts of VMC.

NOTE: The conference call begins at 11 am, eastern.

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25 comments

  1. d.n.f.

    IB can’t find any to short. The plight of the lowly daytrader…

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  2. The Game is Rigged
    The Game is Rigged

    Stock is impossible to locate. Mer stock loan just laughed at me.

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  3. TX Slave Trader

    Go buy VMC UM if you can’t find stock to borrow.

    Thats what I did.

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  4. DSB

    This is turning out to be quite the clownrape, for now.

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  5. Gregory

    You are getting seriously screwed today with your egregious amounts of VMC.

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  6. Topper Harley

    Somebody wake me up when the conference call gets over. Won’t be surprised to see the stock hit triple-digits [sic]
    Fuck, the game is truly rigged.

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  7. JakeGint

    WTF??

    Are they in play? Something egregiously egregious going on here.

    It’s an egregiousity!

    ___

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  8. Fab

    Let me know when you capitulate and cover. That’s when I short.

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  9. Gregory

    For your information: motley Fool:Inside value has this as a BUY rating for seriously undervalued. Go figure.

    Looking at today’s move, I am missing something or is this month offcially the Constansa month.

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  10. JakeGint

    One of my best friends growing up on the Island is a lawyer now, and he has a great term for this type of thing:

    “Jacqueasserie”

    —–

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  11. DSB

    Fly, this is karma for making fun of fat fucks.

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  12. BUSTER

    I’m confused. Vulcan is up 8% on bad news? And you own it is size, and are complaining that its up 8%?

    Seems like The Fly wins even when he thinks he is losing.

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  13. The Fly

    I have seen it all now.

    UNBELIEVABLE.

    I’d rather die, than cover up here. It’s just a short squeeze.

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  14. Scum Bucket Bitchez
    Scum Bucket Bitchez

    20% short and you jump on the bandwagon? You must have got a mind meld or something.

    What’s up w/ MVL, they’re up, down, up, down, puke.

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  15. JakeGint

    Boomer,

    Guess that Ivy League shit ain’t all it’s cracked up to be after all.

    Unless you were a legacy, maybe?

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  16. the Bull says

    Egregious losses AND you’ll have to pay the .49 divvy on the 25th!

    Yikes!

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  17. The Contractor

    lol @ jake

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  18. The Contractor

    Oil decline=lower input costs for VMC so the dip buyers come out in full force looking for a bottom.

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  19. BUSTER

    Oh! You are short. Geez, sorry. My bad. That sucks. I just scanned the post earlier.

    And Jake, va fangul. Grandma Boomer throws a meatball at you.

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  20. Juice

    being short in size on horrid fundies is soooo Q1 & Q2 rear view mirror… this is Q3 , the Q of looking thru the valley of the looming depression/ww3 to the glory days ahead

    get with the program

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  21. Mr. EB

    I tried to short it twice today. My broker said “no borrow” each time.

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  22. Marty  Mc"Fly"

    Just picked up in the money puts as there was no chance at shorting…..

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  23. JakeGint

    This is exactly what happend to me with MOS last week, and that turned out fine.

    Hang in there.

    __

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  24. Market Fool

    economics schmeconomics.

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  25. Employee8

    VMC: Just rotation into domestic material stocks for the coming democratic plan to save the nation from the coming depression via WPA II …. my favorite is GVA … get some before it’s too late … Nov will be here soon and O’Bama is a shoe in with the tanking economy.

    Surprised you’re not long rather than short as it fits your fuck the banks strategy.

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