Investments In Infrastructure Will Drive Future Integration And Resilience

Key Takeaways

• Strategic investments in high-growth markets and infrastructure projects promise future revenue growth and integration capabilities.
  
• Operational efficiencies and share buybacks are set to enhance margins and boost earnings per share, supporting shareholder returns.
  
• Challenges include significant weather disruptions, subdued construction demand, persistent inflation, political uncertainties, and increased net debt impacting revenue growth and margins.

Catalysts

Provides building materials solutions in Ireland and internationally.

• CRH’s strategic focus on investing in high-growth markets and expanding their solutions capabilities suggests a potential for future revenue growth from these new acquisitions and increased integration capabilities.
  
• The expected continued rollout of the IIJA highway funds, with less than 30% deployed, highlights a significant future revenue potential from infrastructure projects in the U.S.
  
• Ongoing operational efficiencies and cost management strategies are set to support margin expansion, aiding net margin improvements despite inflationary pressures.
  
• The company's large share buyback program and consistent dividend policy are likely to boost earnings per share (EPS) by reducing the number of outstanding shares and rewarding shareholders, respectively.
  
• CRH's focus on integrated materials solutions and adaptability to economic and weather-specific challenges indicates resilience that could continue to drive earnings growth moving forward.

CRH Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CRH's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.8% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $4.5 billion (and earnings per share of $6.94) by about December 2027, up from $3.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $4.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2027 earnings, up from 19.1x today. This future PE is lower than the current PE for the GB Basic Materials industry at 25.5x.
• Analysts expect the number of shares outstanding to decline by 1.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.99%, as per the Simply Wall St company report.

CRH Future Earnings Per Share Growth

Risks

• Significant weather disruptions have impacted operations in key regions, which could continue to affect revenue growth and margins.
  
• Subdued demand in new residential construction in the U.S. and Western Europe due to high interest rates may negatively impact future revenue and net margins.
  
• Persistent inflation in raw materials, labor, and subcontracting costs poses a risk to maintaining favorable net margins despite pricing improvements.
  
• Uncertainties around political changes and potential policy shifts in the U.S. could impact the federal and state infrastructure funding landscape, affecting revenue projections.
  
• The company’s net debt increased significantly to $11.2 billion, raising concerns about interest expenses affecting net earnings, especially in a high-interest rate environment.

Valuation

• The analysts have a consensus price target of $113.63 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 $131.0, and the most bearish reporting a price target of just $74.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $41.1 billion, earnings will come to $4.5 billion, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 8.0%.
• Given the current share price of $97.23, the analyst's price target of $113.63 is 14.4% 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.