We assign MLM shares a 12-month target price of $706 per share based on a target multiple of 20.0x NTM EBITDA of ~$2.4B, above MLM’s 5-year average of 13.9x, which in our view is justified given: 1) exposure to favorable Aggregates volume and pricing trends; 2) a strong EBITDA margin profile and operating leverage; 3) low leverage and strong cash flow generation that support the pursuit of more aggressive M&A and buybacks; and 4) geographic exposure to strong Southeast and Texas markets, and less geographic concentration than smaller peers.

While we are positive on MLM shares, the company is subject to macro and company-specific risks. Key risks to achieving our target price:

Public Spending Is Uneven – We believe public infrastructure spending should benefit from government programs, driving demand for Aggregates. However, if infrastructure projects face funding or other bureaucratic delays, Aggregates demand could materially underperform our expectations.

Weather Delays – Unfavorable (cold/wet) weather conditions can have a meaningful impact on construction activity and related Aggregates demand, causing quarter-to-quarter as well as year-to-year fluctuations in reported results.

Aggregates Demand is Tied to Economic Activity – Unexpected changes in related economic activity, consumer confidence, government regulations (i.e. NESHAP and other environmental protection rules) may cause the shares to underperform our expectations. In particular, if Aggregates prices do not maintain their MSD trajectory, gross profit will be adversely impacted.

Lastly, a number of quantitative factors could cause downward deviations from our target price, including the cyclicality/seasonality of earnings, stock price volatility, and debt ratings.