High Costs And Macro Worries Drag Cemex Down

My bullish call on Cemex (NYSE:CX) in February was predicated on strong volumes and pricing in the U.S. driving better profits and cash flow, with a healthy outlook for increasing infrastructure spending supporting the longer-term view. While U.S. demand and pricing have both been healthy, the market has become considerably more nervous about 2023 and Cemex has fallen short on profitability, leading to a 20% drop in the stock price and underperformance in an admittedly lackluster cement sector (though Eagle (EXP), GCC, and Martin Marietta (MLM) have held up better).

I’m increasingly concerned about what look like structural cost issues at Cemex that seem likely to lead to longer-term underperformance in profitability. That said, I do think infrastructure demand is likely to remain quite supportive and today’s price seems to reflect an overly bearish outlook for the company. Management has most definitely not earned the benefit of the doubt here, but if the company can manage something on the order of 4% long-term EBITDA growth, I do think there is some value here.

 

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High Costs And Macro Worries Drag Cemex Down