Infrastructure spending promises boost for construction cos. – KIRO 7 News Seattle

Plans to pump money into rebuilding the country’s roads, bridges, and other infrastructure could provide companies with ties to the construction industry a solid foundation for growth.

President Joe Biden announced Thursday that a bipartisan agreement had been reached on a $ 973 billion infrastructure plan. The scaled-back plan provides for new spending of $ 559 billion over five years.

Companies like Caterpillar with its heavy machinery and building materials maker Vulcan Materials could see years of additional business as roads and bridges rebuild and buildings modernized. Both companies’ shares rose Thursday after the bipartisan deal was closed. Smaller construction-related companies also benefited: Dycom, the construction company providing services, grew by almost 6%.

Infrastructure plans are long overdue, said economists and business leaders, as the country’s roads, bridges and other infrastructure age without significant overhaul. The American Society of Civil Engineers gave the country’s roads a bad grade in their 2021 report, saying 40% of the system is now in poor or mediocre shape. Bridges, schools, and much of the major infrastructure in the US don’t do much better.

“From an economic growth perspective, we see that the infrastructure contract really improves productivity,” said Ken Johnson, investment strategy analyst at Wells Fargo Investment Institute.

The deal agreed on Thursday still has a way to go. For one thing, Biden said he would only sign the deal if a far larger $ 4 trillion reconciliation bill – which would include his other priorities – also gets on his desk.

Also, the compromise package is less than the $ 2 trillion the president originally targeted for infrastructure, and focuses more on hard infrastructure and less on efforts to combat climate change.

Citi expects almost all heavy equipment manufacturers in their coverage group will benefit from government spending, but Caterpillar will likely be the biggest winner.

“It’s hardly surprising to anyone who has passed a major highway project that Caterpillar has strong market shares in most heavy equipment categories in North America,” according to a Citi report released last week.

While the industrial and raw materials sectors are getting a boost from the infrastructure deal, the broader stock market is focused on the macroeconomic recovery from the pandemic. “The general reopening of the economy and renewed economic growth after Covid-19 are the most likely drivers” of the future market, said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.

Peter Williams, an economist at investment firm Evercore ISI, said the infrastructure package is unlikely to start fueling economic growth until 2023 as it takes time for major construction and repair projects to get underway. But in 2025 and 2026, the additional package would increase the economic growth rate by a healthy percentage point, Williams estimates, and create up to 775,000 jobs.

Michael Pugliese, an economist at Wells Fargo Securities, said the infrastructure deal would likely have a modest impact on job creation and unemployment, but could help the US unemployment rate fall below 4% a little earlier than usual in 2023.

The profits of many companies associated with the construction or industrial sectors are expected to gain ground over the next few years as the economy recovers. Every spending measure spread over the years helps secure and fuel that growth through contracts for projects and orders for supplies and equipment.

Manufacturers of cranes, bulldozers and other machinery are still only part of the picture. Companies that manufacture asphalt, concrete, and other road and building materials are well positioned with future infrastructure spending. Vulcan Materials and Martin Marietta Materials are among the largest manufacturers of aggregates in the United States

“Remember that any definition of infrastructure, when it comes to new build, aggregates are the foundation,” said J. Thomas Hill, President and CEO of Vulcan Materials, on a conference call with investors. “So it will help us, regardless of whether it is roads and bridges or other forms of infrastructure.”

But don’t overlook small construction companies either. Granite Construction, based in Watsonville, CA, rose nearly 5% on Thursday and rose another 4% on Friday. The company has a market value of nearly $ 2 billion.

Paint and coatings manufacturers like Sherwin-Williams and PPG Industries are also in a good position to capitalize on rising government spending. Bridges need paint and other coatings to withstand the elements, while roads and buildings also need a significant amount of paint.

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Business authors Christopher Rugaber and Paul Wiseman contributed to this.

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