Increasing Our Price Targets on United Rentals, Vulcan Materials After Construction Spending Report
Infrastructure spending and other stimulus spending should drive favorable activity heading into the spring.
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* We are boosting our price targets once again for United Rentals and Vulcan Materials following the February Construction Spending report
* Nonresidential construction spending climbed 14.2% year over year in February, putting it up more than 15.5% for the first two months of 2024
* Infrastructure spending and other stimulus spending should drive favorable activity heading into the spring
Alongside this morning’s March Manufacturing PMI data, we also received the February Construction Spending report that showed total construction spending rose 10.7% year over year to a seasonally adjusted annual rate of ~ $2.1 trillion. That figure was little changed compared to January, but as we know the details underneath those headline figures matter.
Peering deeper into the report, we found total nonresidential construction rose 15.6% year over year during January and February, a robust start to the year, while residential construction climbed 5.9% over the same period.
That continued strength and prospects for more ahead because of the Biden Infrastructure Law, Inflation Reduction Act, and the eventual impact of the CHIPs Act, is leading us to boost our price targets for United Rentals URI and VMC VMC to $750 and $310 from $700 and $300, respectively. For now, we will maintain their current panic points of $600 for URI shares and $225 for VMC, but as they move higher we will look to lift those levels.
As we make those adjustments, we will look to the forthcoming data, including weekly rail traffic data from the Association of American Railroads, the Architecture Billings Index, and stimulus program award, to gauge continued strength in nonresidential construction spending.
As we do this, we will continue to watch housing construction as well, however, with the increasing prospect for the Fed to slow walk its way to rate cuts, we continue to see nonresidential construction being the larger tailwind for overall construction spending.
At the time of publication, TheStreet Pro Portfolio was long URI, VMC.
