Infrastructure activities came to a near standstill last year due to COVID-19 pandemic-related restrictions. The sector is now witnessing a solid recovery with the reopening of the economy and the easing of restrictions thanks to a robust mass vaccination drive. According to the U.S. Census Bureau, construction spending increased 5.8% year-over-year to $452.3 billion during the first four months of this year.
While Biden’s much discussed infrastructure bill has yet to be passed, the White House and Senate Republicans appear to be inching closer to a deal. U.S. Senate Majority Leader Chuck Schumer said on June 15 that he hoped to have a July vote on a bipartisan infrastructure bill. With the urgent need to upgrade traditional infrastructure in the U.S., such as roads, bridges and ports, the bill should drive significant growth in the infrastructure industry. Investors’ interest in this space is evidenced by iShares U.S. Infrastructure ETF’s (IFRA) 23.8% returns over the past six months compared to SPDR S&P 500 Trust ETF’s (SPY) 15.7% gains.
Given this backdrop, we think it is wise to scoop up the shares of fundamentally sound companies Caterpillar Inc. (CAT), Cummins Inc. (CMI), and Nucor Corporation (NUE) ahead of the passage of the infrastructure bill.
Click here to check out our Infrastructure Sector Report for 2021
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Its construction Industries segment offers asphalt pavers, compactors, cold planers and motor graders. The company's resource industries segment provides draglines, rotary drills, mining trucks and wheel loaders.
On February 2, 2021, CAT completed its acquisition of the oil & gas division of the Weir Group PLC, a Scotland-based global engineering business. Joe Creed, the company’s Caterpillar Group President, said “This acquisition is consistent with our strategy of providing our customers expanded offerings and services, which will now be one of the broadest in the well-service industry.”
CAT’s sales increased 11.8% year-over-year to $11.89 billion for the first quarter ended March 31, 2021. Its operating profit grew 29.2% year-over-year to $11.81 billion, while its profit increased 40.1% year-over-year to $1.53 billion. Also, its adjusted EPS came in at $2.77, up 39.9% year-over-year.
Analysts expect CAT’s EPS and revenue to increase 131.1% and 25.9%, respectively, year-over-year to $2.38 and $12.59 billion for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has soared 77.5% over the past year to close yesterday’s trading session at $219.46.
CAT’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a B grade for Growth.
Click here to see the additional POWR Ratings for CAT (Value, Stability, Quality, Momentum and Sentiment). CAT is ranked #35 of 84 stocks in the A-rated Industrial - Machinery industry.
Cummins Inc. (CMI)
CMI designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: engine, distribution, components, power systems, and new power. The company sells its products to original equipment manufacturers (OEMs), distributors, dealers, and other customers.
On June 1, CMI announced the availability of Murphy Engine Integrated Control System (EICS) for GTA855GCE and G855GCE gas compression engines. The control system is known to provide significant operational improvements and a power upgrade. As a result, CMI could witness increasing demand for its solution in the coming months.
CMI’s total revenues increased 22% year-over-year to $6.10 billion for its fiscal first quarter ended March 31, 2021. Its EBITDA grew 15.8% year-over-year to $980 million. Its net income increased 18% year-over-year to $603 million. Also, its adjusted EPS came in at $4.07, up 19.3% year-over-year.
The company’s EPS is expected to be $4.04 for the current quarter ending June 30, 2021, which represents a 107.2% year-over-year rise. It surpassed the Street’s EPS estimates in each of the trailing four quarters. CMI’s annual revenue is expected to increase 21.9% year-over-year to $24.15 billion in 2021. The stock has surged 47.9% over the past year to close yesterday’s trading session at $250.10.
It’s no surprise that CMI has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Sentiment and Quality.
Click here to see CMI’s ratings for Growth, Value, Momentum and Stability as well. CMI is ranked #8 in the Industrial - Machinery industry.
Nucor Corporation (NUE)
NUE manufactures and sells steel and steel products. It operates through three segments: steel mills, steel products, and raw materials. The company also produces direct reduced iron (DRI) for use in its steel mills. It offers its products through its in-house sales force and internal distribution and trading companies.
NUE announced on May 5, 2021, that its board of directors had approved a project to upgrade its engineered bar mill in Nebraska to better serve the automotive market and continue to meet its customers' needs for the highest quality products. This is expected to help NUE establish itself as a leader in the engineered bar and rod domain.
The company’s net sales increased 33% sequentially to $7.02 billion in its fiscal first quarter ended April 3, 2021. Its average sales price per ton grew 25% year-over-year. NUE’s net earnings increased 1,716% year-over-year to $942.40 million while its adjusted EPS increased 4,328.6% year-over-year to $3.10.
For the current quarter ending June 30, 2021, analysts expect NUE’s EPS and revenue to increase 1,121.6% and 84.5% year-over-year, respectively, to $4.52 and $8.14 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 149.3% over the past year to close yesterday’s trading session at $101.92.
NUE’s POWR Ratings reflect this promising outlook. The company has an overall B, which translates to Buy in our proprietary ratings system.
The stock has an A grade for Growth, and a B grade for Momentum and Quality. Within the A-rated Steel industry, NUE is ranked #20 of 34 stocks.
To see the additional POWR Ratings for NUE (Stability, Sentiment and Value), click here.
Click here to check out our Infrastructure Sector Report for 2021
CAT shares were trading at $218.82 per share on Wednesday morning, down $0.64 (-0.29%). Year-to-date, CAT has gained 21.40%, versus a 13.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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