As reflected at the current price of $39, what future Summit Materials operating performance is the market anticipating? Summit Materials’ common shares will need to reach $66 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $77 Summit Materials stock price by 2029.
Executive Summary
- Key Summit Materials characteristics: high profitability, stability, above average expected growth, and above average financial strength. A big positive influence on Summit Materials’ valuation is its superior Risk Profile.
- Average valuation, above market shareholder returns. Current valuation levels are average relative to the Summit Materials Peer Group. Recent market returns have outperformed the Summit Materials Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, Summit Materials shares should reach a level of $73 by 2029 — an 11.0% per year total shareholder return. A 2029 stock price of $66 would reflect median performance and a price of $77 would be required to reach upper quartile performance.
- Historical growth has been high relative to the Summit Materials Peer Group and forecasted growth is relatively average. Summit Materials’ historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable.
- Pretax ROA, Pretax Margin, and Return on Equity are group leading. These factors have strengthened market perceptions of Summit Materials. The company has normal cash needs.
- Risk Profile has been Summit Materials’ biggest valuation strength. Summit Materials’ risk profile is very favorable. Overall variability has been very low with very low revenue variability, very low E.P.S. variability, and only average stock price volatility. Financial Strength is only average and earnings’ expectations are relatively very high. The debt/capital ratio has risen.
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