On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on CRH plc (NYSE:CRH), a leading global diversified building materials group, by upgrading the stock from Equal-weight to Overweight. The firm also increased the price target to $88.00 from the previous $87.00. The upgrade reflects a positive outlook on the stock, currently trading at what Morgan Stanley considers a significant discount.
The analyst at Morgan Stanley highlighted that CRH plc's shares are trading at a 29% discount to their Sum of the Parts (SOTP) valuation, which appears too wide given the company's diversified product range and geographical presence. This discount is seen despite the market's leaning towards US-focused aggregates companies like Martin Marietta and Vulcan, which command approximately twice the EV/EBITDA multiple compared to CRH.
In defense of the upgrade, the analyst pointed out that CRH's margins may not be as high as those of its pure-play US counterparts, but its return on capital remains consistent. Additionally, the firm believes that the market does not fully appreciate CRH's European heavyside business and other European heavyside companies.
The analyst argues that despite less attractive demand and volume prospects in Europe compared to the US, factors such as carbon pricing and commercial leadership contribute to pricing discipline and support sustained cash flow growth.
Morgan Stanley's analysis suggests that CRH is undervalued. "Trading on 2024e 6% FCFY, 5% total return yield and 8x EV/EBITDA, the shares look cheap", the analyst noted.
The assessment implies that the stock offers an attractive investment opportunity at its current price level. The firm's upgraded rating and price target are based on these financial metrics and the broader market positioning of CRH plc.
In other recent news, CRH plc has been making significant strides in the market. RBC Capital recently set an Outperform rating on CRH shares, suggesting that the building materials company could see considerable growth by focusing its operations solely in North America. The firm's analysis indicates that the strategic move last year to make the United States CRH's primary base has already resulted in a positive re-rating of the company's shares.
In addition to RBC Capital's positive outlook, Truist Securities has also adjusted the price target for CRH shares to $100.00, up from the previous $95.00, while maintaining a Buy rating on the stock. This decision was based on CRH's recent performance, which saw its financial results surpass Wall Street's expectations.
CRH plc also reported robust financial results for the first quarter of 2024, showing significant growth in revenues and adjusted EBITDA compared to the same period last year. The company has been active in mergers and acquisitions, completing several strategic transactions and maintaining a strong balance sheet despite substantial outflows due to acquisitions.
InvestingPro Insights
In light of Morgan Stanley's positive outlook on CRH plc, key metrics from InvestingPro further enhance the investment narrative. CRH's management has been proactively engaging in share repurchases, signaling confidence in the company's valuation and future prospects. Additionally, the firm's commitment to raising its dividend for four consecutive years underscores a shareholder-friendly policy and a stable financial position.
From a valuation standpoint, CRH's P/E ratio stands at an attractive 16.02, with an adjusted P/E ratio over the last twelve months as of Q1 2024 at 14.78. This, combined with a low PEG ratio of 0.64 during the same period, suggests that the stock is trading at a low price relative to near-term earnings growth. Moreover, a robust revenue growth of 10.75% over the last twelve months as of Q1 2024 indicates a strong business performance.
Investors seeking additional insights can explore more InvestingPro Tips, which include analysis on CRH's low price volatility, its prominence in the Construction Materials industry, and its strong return over the last five years. There are a total of 8 additional InvestingPro Tips available for CRH, which can be accessed through InvestingPro's platform. Those interested in a comprehensive investment analysis can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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