Amrize

We are transferring coverage of US building materials companies Vulcan Materials, Martin Marietta, and Amrize. The companies produce aggregates, cement, ready-mix concrete, and other building materials used across infrastructure, nonresidential, and residential construction.

The bottom line: We are increasing our fair value estimates for Vulcan to $238 per share from $198 and Martin Marietta to $496 per share from $440, while lowering our fair value estimate for Amrize to $42 per share. We are also upgrading our moat ratings for Vulcan and Martin Marietta to wide and maintaining our narrow moat rating for Amrize. Our moat upgrades reflect our confidence in the visibility and durability of cash flows generated by their aggregate businesses. High barriers to entry constrain new quarry development, while aggregates’ low value-to-weight ratio makes transportation over long distances uneconomical, creating highly localized markets. Within these localized markets, Vulcan and Martin Marietta benefit from strong positions. Aggregates are essential to construction with no substitutes, and the limited ability to source material from farther away reduces competition and supports sustained pricing power.

Long view: We expect a favorable construction backdrop to support aggregates demand over the medium to long term, with public infrastructure spending providing a relatively stable base of activity and large-scale nonresidential projects adding incremental growth. The Infrastructure Investment and Jobs Act has provided a meaningful tailwind to construction activity, with more than $350 billion authorized for highways and bridges. A significant portion of this funding remains to be deployed, while policymakers are also working on a successor transportation bill which could extend this supportive spending environment beyond the current program. We also expect continued investment in data centers and manufacturing to support nonresidential construction activity.

We are decreasing our fair value estimate to $42 per share from $59. Our revised valuation equates to 17 times our 2026 adjusted earnings per share estimate.

We forecast average annual organic revenue growth of 4.8% over the five years of our forecast, below the lower end of management’s 5%-8% target through 2028. We remain somewhat conservative relative to management’s expectations, given Amrize’s limited record as an independent company. We would like to see more evidence that it can consistently deliver above-market growth across its portfolio.

In building materials, we expect growth to be supported by recovering volume and continued pricing increases. Infrastructure demand should remain supported by funding from the Infrastructure Investment and Jobs Act and its successor bill, while data center development and manufacturing investment should support nonresidential construction. We forecast cement shipment growth of around 2%-2.5% annually and aggregates volume growth averaging around 3% annually. We expect cement pricing to increase around 2%-3% annually and aggregates pricing to grow around 4% annually, supported by high barriers to new capacity and localized market structures. We forecast building materials EBITDA margins expanding from around 29% in 2025 to roughly 31% by 2030, supported by continued pricing, volume growth, and improved fixed-cost absorption.

In the building envelope segment, we forecast revenue growth of around 4.3% annually on average, supported by relatively steady repair and remodeling demand and continued commercial construction activity. We expect modest pricing increases alongside underlying volume and mix improvements to support EBITDA margin expansion from around 22% in 2025 to roughly 25% by 2030.

Beyond our explicit forecast period, our stage two assumptions incorporate a 10% return on new invested capital and 4% annual EBIT growth for the following 10 years.

We assign Amrize a Narrow Morningstar Economic Moat Rating based on intangible assets. We expect the firm to generate returns above its weighted average cost of capital for at least the next 10 years. We believe the moat is primarily supported by Amrize’s cement and aggregates businesses within its building materials segment, where high barriers to entry support pricing power.

We assign the building materials segment a narrow moat. Cement accounts for roughly 50% of segment revenue. Amrize is the largest cement producer in North America. Cement is made by grinding and heating a mixture of raw materials such as limestone, clay, sand, and iron ore in a rotary kiln. The product (called clinker) is cooled, ground, and then mixed with a small amount of gypsum to produce cement. Building a new cement plant requires significant capital investment, and permitting can prove to be very difficult. Cement kilns are also sources of air pollution and are subject to extensive environmental regulations, creating another barrier to new entry. However, cement has a much higher value/weight ratio than aggregates and can therefore absorb greater transportation costs before becoming uneconomical (it can be transported 150-200 miles), allowing plants to serve customers across a wider radius. Cement can also be transported efficiently by rail and water, which exposes domestic producers to competition from outside their immediate markets. Imports currently account for roughly 20% of US cement consumption.

Aggregates account for roughly 25% of segment revenue and benefit from a moat. Quarry owners benefit from high barriers to entry because opening a new site requires extensive permitting and regulatory approvals. Approvals have become increasingly difficult; the process can take up to 10 years from land acquisition to the first sale of materials. Opposition from local communities can further delay or prevent new development. These barriers largely limit the addition of new capacity. With quarry lives typically spanning over 50 years, an existing permit can protect an incumbent's market position for decades. We view these difficult-to-obtain permits as an intangible asset moat source for aggregate producers. Aggregates generally sell for around $20 per ton, making transportation costs significant relative to the value of the product. Trucking, the most common form of transportation, typically becomes uneconomical beyond 50 miles because hauling costs can exceed the cost of the stone itself. Since these freight costs are generally passed on to customers, buyers have a strong incentive to source from nearby quarries. This creates highly localized markets; in some cases, producers operate as virtual monopolies in their service areas. So, a transportation cost advantage can arise from proximity to customers.

The remaining roughly 25% of segment revenue comes from downstream products such as ready-mixed concrete and asphalt, which have materially lower barriers to entry. A ready-mix operation, for example, only requires a batching facility and delivery fleet rather than access to permitted mineral reserves or a capital-intensive kiln. We therefore view these businesses as more commoditized and more exposed to price-based competition.

We do not believe the building envelope segment has a moat. The segment produces roofing and wall system products such as shingles, insulation, sheathing, sealants, and fasteners. Amrize sells these products either directly to contractors or through distributors, with most roofing products sold through distributors. We see limited differentiation across suppliers, with purchasing decisions generally based on price and product availability. Switching costs are also low, as contractors can usually source similar products from competing manufacturers without much disruption.

High capital requirements and difficult permitting for new cement plants and aggregates quarries limit new supply, supporting pricing power across Amrize’s core building materials businesses.

Around 50% of Amrize’s revenue comes from repair and refurbishment activity, which should make demand relatively resilient even during weaker construction cycles.

Bipartisan approval for the proposed reauthorization of a new infrastructure funding program in the US will provide a healthy demand environment in the medium term.

If a successor to the current infrastructure act provides less funding than expected, or directs less spending toward Amrize’s key markets, demand could fall short of our expectations.

Amrize’s building envelope business generates lower returns than building materials. Further acquisitions in roofing and other building envelope products could increase the share of the portfolio allocated to lower-return businesses.

Amrize’s earnings remain exposed to factors outside its control, including adverse weather conditions and volatility in energy and raw material costs.