Cemex is upgraded to Buy from Neutral by Longbow, based on continually improving fundamentals in the cement industry with price increases of 8-10 per cent supported by volume growth of 6-8 per cent.
In a report published Wednesday, Longbrow Research analyst said utilisation rates are climbing and contacts are concerned about available capacity in late 2015 and early 2016; these factors, including limited driver availability, suggest continued suppliers' pricing power.
US driver
A recovery in the US cement market is expected to drive Cemex's future growth prospects. "Despite a weak start to the year in US cement demand due to lower Texas volumes (we expect four per cent volume growth for CX versus guidance of mid-single digit growth) pricing remains a positive surprise." the analysts added.
The report highlighted that in April/May domestic cement demand grew 6-8 per cent YoY and the Midwest, California and Southeast were incrementally stronger. Texas and Colorado both saw a strong April, although May brought weather related project delays.
The company's less exposure to Texas is a positive feature, the analysts noted adding: "We see 1) upside to US cement pricing, 2) Mexico recovering off a low base, and 3) Europe stabilizing. Essentially, CX is entering a period in which all of its main geographies are trending up."
Main geographical areas trending higher
The research house further added that Cemex is entering a period in which all of its main geographic areas are trending higher, the firm says, citing upside to US cement pricing, Mexico recovering from a low base and Europe stabilising.
