Bolt-on Acquisitions And Infrastructure Will Open New Horizons

Key Takeaways

• Focus on value-accretive acquisitions and strong pricing momentum to boost revenues, margins, and adjusted EBITDA growth.
  
• Strategic capital allocation, including buybacks and dividend increases, aims to enhance shareholder value and EPS.
  
• Macroeconomic uncertainty, rising input costs, debt increase, and seasonal low profitability pose risks to CRH's financial performance, potentially affecting revenue, margins, and net income.

Catalysts

Provides building materials solutions in Ireland, the United States, the United Kingdom, rest of Europe, and internationally.

• CRH's focus on value-accretive bolt-on acquisitions in higher-growth markets is expected to enhance revenues and contribute to adjusted EBITDA growth, indicating a promising future outlook for earnings.
  
• The strong positive pricing momentum across CRH's various business lines, particularly in aggregates and asphalt, alongside improved operational efficiencies and cost control, is likely to boost net margins and adjusted EBITDA moving forward.
  
• The significant remaining deployment of IIJA highway funds in the US, along with robust infrastructure demand in international markets, is anticipated to drive substantial revenue growth as infrastructure makes up CRH’s largest end market.
  
• CRH's resilient business model and strategic focus on customer-connected solutions are expected to capitalize on strong industry demand, further enhancing revenue and margin growth.
  
• Continued share buybacks and a commitment to a dividend increase reflect a strategic capital allocation approach aimed at enhancing shareholder value and earnings per share (EPS) over time.

CRH Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CRH's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $4.7 billion (and earnings per share of $7.12) by about May 2028, up from $3.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $4.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.4x on those 2028 earnings, down from 19.6x today. This future PE is lower than the current PE for the GB Basic Materials industry at 21.5x.
• Analysts expect the number of shares outstanding to decline by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.32%, as per the Simply Wall St company report.

CRH Future Earnings Per Share Growth

Risks

• The macroeconomic uncertainty, particularly the volatility in the foreign exchange market, could adversely impact CRH's financial performance, potentially affecting revenue and net income.
  
• The seasonal nature of CRH's business often results in low profitability in the first quarter, which can be a risk if future seasonal conditions are worse than expected, impacting overall earnings.
  
• The continued rise of input costs such as energy and raw materials, despite positive pricing trends, could erode margins if CRH is unable to pass these costs onto customers, impacting net margins.
  
• While demand and backlog indicators appear positive, any delays or cancellations in large-scale infrastructure projects due to changing government priorities or budget constraints could lead to reduced growth in revenues.
  
• The company's significant increase in net debt, from $10.5 billion to $12.7 billion, raises concerns about its leverage and ability to finance future growth without compromising financial stability, potentially affecting net income.

Valuation

• The analysts have a consensus price target of $111.717 for CRH based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.5, and the most bearish reporting a price target of just $87.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $42.6 billion, earnings will come to $4.7 billion, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $93.95, the analyst price target of $111.72 is 15.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.