Construction spending from the federal infrastructure spending bill passed in 2021 is expected to increase substantially in the coming years, and that’ll be a boon for Eagle Materials (EXP). The Dallas-based firm produces both heavy and light construction materials, including concrete, construction aggregate, gypsum, wallboard, and sand for hydraulic fracturing, notes Mike Cintolo, editor of Cabot Top Ten Trader.

In this market, most of the “extended” leaders — and by that we mean names that have been running for three-plus months without any rest or pullback — are being tested. More than a few are wobbling and zeroing in on intermediate-term support and a few already cracking.

Meanwhile, some of my favorite names recently mostly live outside the tech arena. Many have recently taken off and some are pulling into areas of support.

That brings me to EXP. It expects to benefit from the spending trends highlighted above – as well as from what it sees as a long-term tailwind in private non-residential spending.

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What’s more, Eagle expects an additional boost from increased heavy industrial projects focused on computer, electric, and the onshoring of semiconductor manufacturing as a result of many subsidies and incentives included in the CHIPS and Inflation Reduction Acts of 2022.

Against this favorable backdrop, half of Eagle’s markets have just implemented price hikes, with the other half to increase prices in April. In fiscal Q3 (ending December), revenue of nearly $560 million increased 9% from a year ago, with earnings of $3.72 per share up 165% topping estimates by 17 cents.

The solid results were led by an 18% rise in the firm’s Heavy Materials segment (concrete, cement, and aggregates), due mainly to higher cement sales, plus higher aggregate sales volume and record concrete pricing (up 13%). Eagle’s gypsum wallboard business continues to benefit from a long-tail construction backlog that has kept demand steadier than expected in its key domestic markets.

Recommended Action: Buy EXP.

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