Expansion Into Texas And Florida Will Leverage IIJA Funding To Improve Future Efficiencies

Key Takeaways

• Strategic acquisitions and market expansions in the U.S. are driving revenue growth, improved margins, and potential future earnings.
  
• Investments in automation and sustainability enhance operational efficiency, supporting margin improvements and potential EPS growth through synergies and scale.
  
• Cost inflation, adverse weather, currency fluctuations, and acquisition integration risks could negatively impact CRH's revenues, margins, and overall earnings.

Catalysts

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

• CRH benefits from significant infrastructure funding through the IIJA, with only a third of highway funds deployed, providing a long runway for growth and expected positive impacts on revenue and margins.
  
• Strategic acquisitions, such as in Texas and Australia, are contributing to EBITDA growth and synergies, indicating potential future earnings improvement due to operational efficiencies and integration.
  
• The company is expanding into higher-growth U.S. markets like Texas and Florida, leveraging population growth and infrastructure needs, which is expected to drive revenue growth and margin expansion.
  
• CRH's focus on continuous business improvement and efficiency, including investment in automation and sustainability, is likely to enhance operational efficiency, thereby improving net margins.
  
• The robust capital allocation framework supports M&A and organic growth investments, underpinning potential future EPS growth through increased scale and operational synergies.

CRH Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CRH's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.7% today to 11.1% in 3 years time.
• Analysts expect earnings to reach $4.7 billion (and earnings per share of $7.12) by about April 2028, up from $3.5 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 19.6x on those 2028 earnings, up from 16.8x today. This future PE is greater than the current PE for the GB Basic Materials industry at 15.9x.
• Analysts expect the number of shares outstanding to decline by 1.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.21%, as per the Simply Wall St company report.

CRH Future Earnings Per Share Growth

Risks

• Adverse weather conditions in the United States could negatively impact activity levels, which could result in lower revenues and earnings.
  
• Residential new build activity may remain subdued, potentially affecting revenue growth in the residential segment.
  
• Cost inflation, particularly in labor, raw materials, and subcontractor costs, could pressure net margins if not offset by pricing or operational efficiencies.
  
• Currency exchange rate fluctuations, particularly a strong U.S. dollar, could negatively impact earnings when foreign revenues are converted to dollars.
  
• The need for successful integration of numerous acquisitions to achieve anticipated synergies poses execution risks that may impact net margins and overall earnings.

Valuation

• The analysts have a consensus price target of $112.104 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 $90.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $42.0 billion, earnings will come to $4.7 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 8.2%.
• Given the current share price of $85.72, the analyst price target of $112.1 is 23.5% 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.