Here's Why You Should Stay Away From Martin Marietta Now

Martin Marietta Materials, Inc. (NYSE:MLM) has witnessed a dismal price trend so far in 2017. The company’s shares have lost 5% as against the Zacks Building Products - Concrete and Aggregates Industry's growth of 0.1%. Also, this Zacks Rank #5 (Strong Sell) stock has underperformed the industry in each of 4-week, 12-week and 52-week time frames.

Abnormal weather conditions in many markets are affecting Martin Marietta’s operations. The company’s businesses are subject to weather-related risks that can significantly affect production schedules and profits. Excessive rainfall, flooding or severe drought can jeopardize shipments, production and operations in all markets. The first and fourth quarters are most affected by winter. Hurricane activity in the Atlantic Ocean and Gulf Coast is most active during the third and fourth quarters.

The recent hurricanes — Harvey and Irma — disrupted the company’s operations, caused short-term dislocations and work stoppages in August and September.

During the third quarter, volume growth in the Mid-America Group was affected by heavy precipitation while Southeast Group’s shipments were unaffected. Volumes also declined due to project delays. Infrastructure volume growth declined during the quarter due to weather-related woes and delay in ongoing projects.

Let’s take a look at some more factors affecting the stock.

Earnings Miss and Downward Estimate Revisions: The company’s lackluster bottom-line performance in the last reported quarters disappointed investors. Earnings of $2.39 missed estimates by 4%. Moreover, the company lagged estimates in the last four quarters with an average miss of 2.01%.

Again, Martin Marietta has witnessed current-quarter earnings estimates decline 17.3% over the past 60 days, on the back of two downward revisions against none upwards. The same for the current year fell 5.3% due to three downward revisions versus none in the opposite direction. The Zacks Consensus Estimate for 2017 earnings is expected to grow 4%, less than the industry’s projected growth of 12%. Also, earnings estimates for 2018 declined 7.6% in the same time frame.

Guidance Cut: The company expects net sales in the range of $3.64-$3.74 billion, lower than the previous range of $3.75-$3.95 billion. Aggregates Product line net sales are projected in the range of $2.1-$2.16 billion (lower than the previous range of $2.2-$2.3 billion). Aggregates product line volume is expected in the range of -1-1%, down from the previous expectation of 4-5.5%.

Cement Product Line net sales are estimated in the range of $365-$375 million, down from the previous range of $380-$400 million. Ready Mixed Concrete and Asphalt/Paving Product Lines net sales are projected in the band of $1.27-$1.31 billion compared with the prior guidance of $1.3-$1.4 billion.

Overvalued Compared to Peers: Martin Marietta has a Value Style Score of D, pushing it into the bottom 40% of all stocks we cover from this perspective.

Looking at the company’s price-to-earnings (P/E) ratio, the company currently has a trailing 12-month P/E ratio of 30.7, higher than the S&P 500 index’s average of 21.4x. Also, the stock is relatively overvalued compared with its peers as the industry average is pegged at 23.9x.

Looking at the company’s sales, the company currently trades at a Price-to-sales (P/S) ratio of 3.3, higher than the industry average of 1.1. Some prefer this metric more than other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.

An often overlooked ratio is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into consideration, but can give a more accurate picture of the financial health of a business. Martin Marietta has a P/CF of 18.3, higher than the industry’s average of 10.7.

All these ratios show that the company is overvalued compared with industry peers and thus it not a good time to place a bet on the stock.

Negative Industry Outlook: The industry has underperformed the broader market over a year. Currently, the industry ranks among the bottom 8% (243 out of 265 industries). Along with dismal performance of the industry in the past, a poor rank signals that the stock is likely to be affected by unfavorable broader factors in the immediate future.

Moreover, tightened labor markets, in both the public and private sectors has led to project delays and hinder significant growth in construction activity. Martin Marietta blames the state departments of transportation of being understaffed, which is limiting the number of new projects stemming from the additional infrastructure funding provided by the Fixing America's Surface Transportation Act, or FAST Act and other state and local initiatives.

Therefore, similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. As both the share price and estimates are falling for Martin Marietta, it could be time to get rid of the security before more losses hit your portfolio.

Stocks to Consider

A few better-ranked stocks in the Zacks Construction sector are Patrick Industries, Inc. (NASDAQ:PATK) , United Rentals, Inc. (NYSE:URI) and Armstrong World Industries Inc (NYSE:AWI) . All three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Rentals is expected to witness an 18.1% rise in 2018 earnings.

Patrick Industries is expected witness 16% earnings growth in 2018.

Armstrong World Industries’ earnings are expected to rise 8.8% in 2018.

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