On Friday, JPMorgan adjusted its stance on Martin Marietta Materials (NYSE:MLM), downgrading the stock from Overweight to Neutral, despite increasing the price target to $600 from the previous $530.
The revision reflects a reassessment of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates for 2024 and 2025, taking into account recent business transactions.
The firm's analysis indicates a decrease in EBITDA estimates by 6% due to the divestiture of Hunter Cement, which contributed a negative $170 million, and the inclusion of a positive $40 million contribution from a recent aggregates acquisition in Colorado.
JPMorgan forecasts Martin Marietta's EBITDA for this year at $2.259 billion, aligning with the company's guidance midpoint of $2.14 to $2.34 billion. This projection suggests a year-over-year growth of 6% or a long-term growth of 12%, with an expected 5% increase in 2025.
Margin adjustments were made, resulting in a slight decrease, yet they are expected to rise by 0.6 percentage points year-over-year to 32% and remain flat in 2025. Volume growth is anticipated to be stable, with prices projected to increase by 10-11%.
The company's net leverage is reported at 1.4 times, which could rise to 1.85 times with the closure of the Blue Water acquisition. The free cash flow (FCF) conversion rate for fiscal year 2024 is estimated at 55%.
Martin Marietta has communicated plans for further mergers and acquisitions (M&A) throughout the year and is awaiting the completion of its latest aggregates acquisition, Blue Water.
The new price target of $600 implies a 1% downside from current levels and values the company at 15.6 times its projected 2025 enterprise value to EBITDA (EV/EBITDA). The stock has seen a significant increase year to date, with a 22% rise and is currently trading at a multiple of 18.0 times its estimated 2024 EV/EBITDA.
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