A schedule 13G filing with the SEC on Friday evening revealed that Steven Cohen increased his stake in US Concrete Inc (Nasdaq: USCR) by $20.7 million. With the stock down -16.4% in the last month, it’s worth taking a closer look at the company.
Point72 Adds To Its US Concrete Stake
On February 14th, Steven Cohen’s firm Point72 Asset Management filed its quarterly Form 13F with the SEC. The filing showed that the investment firm held 529,956 shares of US Concrete worth $44.3 million as of December 31st.
However, a new filing on Friday revealed that Point72 Asset Management purchased an additional 337,927 shares bringing the hedge fund’s total ownership stake to 867,883 shares worth roughly $53.1 million. This also represents 5.2% of US Concrete’s total equity.
The company’s shares last traded at $61.15 as of Monday afternoon, down -16.4% over the last month. Could the recent buying activity signal a promising road ahead while the stock trades near its 52-week low?
Potential Reasons For Adding Shares
US Concrete produces and sells ready-mixed concrete, aggregates, and concrete-related products and services to the construction industry in the United States and Canada. It primarily serves concrete sub-contractors, general contractors, governmental agencies, property owners and developers, architects, engineers, and home builders. Wall Street analysts covering the stock often compare the company to a peer group that includes Eagle Materials (NYSE: EXP), Vulcan Materials (NYSE: VMC), Summit Materials (NYSE: SUM) and Martin Marietta Materials (NYSE: MLM). Analyzing US Concrete’s valuation metrics and ratios relative to peers provides further insight into why Point72 Asset Management purchased shares.
A company’s projected 5-year EBITDA CAGR is the average annual growth rate of EBITDA over a five year period. It’s calculated as follows:
5yr CAGR = [ EBITDA FY+5 / EBITDA FY ] ^ (1/5 years) - 1
The chart below plots the five year EBITDA compounded annual growth rate for US Concrete and its peers.
The company’s projected 5-year EBITDA CAGR of 16.9% is above all of its selected comparable public companies: EXP (10.1%), VMC (12.4%), SUM (9.0%) and MLM (7.9%). In addition, US Concrete’s 1-year projected EBITDA growth of 63.6% is also well above all of its peers.
A company’s EBITDA multiple is calculated by dividing its Enterprise Value by EBITDA and is often used to benchmark the fair market value of a company. Its key benefit over the P/E multiple is that it’s capital structure-neutral, and, therefore, better at comparing companies with different levels of debt.
High growth stocks typically trade at higher valuation multiples. However, this does not appear to be the case as illustrated in the chart below.
US Concrete’s LTM EBITDA multiple of 11.7x is below all of its selected comparable public companies. Furthermore, its forward EBITDA multiple of 7.1x is also below the entire peer group. This make’s the company’s shares highly attractive purely on a relative valuation approach.
In addition, finbox.io’s average fair value estimate of $85.19 implies 40.3% upside and is calculated from 4 valuation models as shown in the table below. Each analysis uses consensus Wall Street estimates for the projections when available.
|Analysis||Model Fair Value||Upside (Downside)|
|Peer EBITDA Multiples||$79.50||31.0%|
|10-yr DCF Growth Exit||$97.56||60.7%|
|5-yr DCF Growth Exit||$94.46||55.6%|
|Peer P/E Multiples||$69.21||14.0%|
US Concrete shares have traded lower over the last month and the stock now appears to be trading at a significant discount to its intrinsic value. This could be a reason why Steven Cohen’s hedge fund is adding to his stake in the company.
However, it is important to note that investors should never blindly copy the trading activity of illustrious money managers such as Mr. Cohen. However, keeping an eye on their buying and selling activity will help in making a more informed investment decision.
I recommend investors continue their research on US Concrete to get a more comprehensive view of the company.
Author: Andy Pai
Expertise: financial modeling, mergers & acquisitions
Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:
- Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
- Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets.
Andy can be reached at firstname.lastname@example.org.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.