We came across a bullish thesis on CRH PLC (CRH) on ValueInvestorsClub by Fuego.Suave. In this article, we will summarize the bulls’ thesis on CRH. CRH’s stock was trading at $76 when this thesis was published, vs. a closing price of $102.46 on December 3.
CRH is a global giant of building materials. The stock is well-positioned in an environment of lower rates, backed by its high free cash flow yield and the capacity for approximately 8% organic growth annually. The company’s relatively low exposure to economic and commodity cycles reinforces the investment as a long-term buy.
A specialized team of experts installing building materials in a pre-construction plan.
The company’s earnings are expected to be in line with market estimates in the upcoming report. Any short-term weakness in the stock price after results is an opportunity to buy, as the core investment thesis remains valid. Recent weakness in stock prices was due to weather impact concerns on U.S. construction companies and unjustified Yen carry trade. But CRH’s limited exposure to high-risk, flood-prone areas like Texas has allayed fears of weather-related risks.
The absence of fundamental justification for the decline in the Yen carry trade has led to CRH trading at an attractive valuation. At 9.4x EV/2024 EBITDA CRH’s valuation is tempting, trading on a free cash flow yield of 6.4%. This yields a total of over 14%, with its growth prospects taken into account.
Conservatively valued at $40 billion, the U.S. aggregates business, which accounts for 75% of EBITDA, outperforms peers such as Martin Marietta and Vulcan Materials. At the same time, despite being valued at only 5x EV/EBITDA, its European operations are likely to generate at least 15% upside.
This is further supported by a projected IRR of close to 20%. It is based on EBITDA growth of $9.2 billion over the next 3 years and approximately $3 a share annually from dividends and buybacks. The strength of this multi-year outlook is accentuated by a potential share price of $109.
Upcoming catalysts mentioned in the thesis include earnings results, S&P index inclusion later this year of the specialty firms, and the optionality for additional value unlock through possible spins or relisting of important business segments like peers Holcim inspire. Having said that, CRH is far from fairly valued, offers strong fundamentals and has clear growth drivers.
While we acknowledge the potential of CRH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CRH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: Stavros Tousios has no positions in the aforementioned stocks.
