Cemex Still Undervalued - And Somewhat Underwhelming

Although Cemex (CX) shares have done pretty well since my last update, rising more than 15% and outperforming peers like Vulcan (VMC), LafargeHolcim (OTCPK:HCMLY), Buzzi (OTCPK:BZZUY), and Cementos Pacasmayos (CPAC), the absolute returns over the past couple of years still haven’t been all that impressive, and the company continues to see only modest growth in EBITDA. Now the company is launching another program of value-creation focused on asset sales, deleveraging, and cost cuts that should produce some incremental, but not transformational, value for shareholders.

The volume situation is frustrating, but I still see value in this company as it continues to reduce debt and starts to return capital to shareholders (likely next year). Asset sales could add a little value and there’s still a credible story here for volume acceleration in the U.S. and Mexico over the next couple of years. Below $8.50 to $9, I’d still say there’s more room for these shares to head higher.

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Cemex Still Undervalued - And Somewhat Underwhelming

Saddled With Investor Worries, Cemex Deserves Another Look

I’ve come across a lot of reasons not to invest in Cemex (CX), the Mexico-based global cement company. Some say the company is too complex, others that it has pursued global expansion irrespective of value, and still others that there’s just too much risk in its “value over volume” approach, particularly recently in Mexico.

I’d never argue that Cemex is a flawless investment candidate, but I’d argue the stock’s underperformance relative to peers like Martin Marietta (MLM), Eagle (EXP), LafargeHolcim (OTCPK:HCMLY), and Buzzi (OTCPK:BZZUY) is overdone. Not only is Cemex making significant strides in deleveraging, I believe there is more operating progress than commonly thought, as well as better prospects in its core Mexico and U.S. markets.

Although using free cash flow modeling for a company like Cemex is very tricky, I believe EV/EBITDA is less desirable given the importance of “I” (interest expense) as well as the fact that such a one-year metric doesn’t reward the progress I believe is to come.

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Saddled With Investor Worries, Cemex Deserves Another Look

Cemex Is Better Than The Market Seems To Think

I feel a little bad for Cemex (NYSE:CX). While this cement company, one of the largest in the world, has made good progress with its plans to reduce debt and prioritize margins over market share, the stock has been left out of the post-election rally that has seen 10% to 30% gains for stocks like Martin Marietta Materials (NYSE:MLM), Vulcan Materials (NYSE:VMC), and Lafargeholcim (OTCPK:HCMLY) since I last wrote on Cemex.

While I can appreciate that fears about what the new U.S. administration could mean for Mexico are a factor, I'm nevertheless surprised that the company has not gotten more credit for its self-improvement over the past couple of years.

Modeling (and valuing) a stock like Cemex isn't easy. And while I don't think this is a slam-dunk bargain, I do think there is upside here assuming that the steps management has taken to improve margins and cash flow generation prove long-lasting. Although there is a lot of uncertainty around potential major drivers like U.S. infrastructure spending and Mexico's economic cycle, I like the improvements that management has made and I think the shares are undervalued today.

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Cemex Is Better Than The Market Seems To Think

Cemex Needs A New Set Of Drivers

I liked Cemex (NYSE:CX) back in February, and the 70% move in the shares since then has certainly been gratifying. While Cemex's management has continued to make progress with its deleveraging efforts (including selling assets) and has remained committed to its "value before volume" philosophy, the company has also benefited from easing forex pressures and improving demand in many operating areas.

The question for me now is what takes Cemex to that next level. The shares are above my prior fair values, but not enough has changed in my views about the company or its markets for me to significantly change my estimates and expectations. While I do think better days could be ahead for Cemex in terms of both pricing and volume in the U.S., Mexico and Latin America, it looks like a lot of that is in the price today.

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Cemex Needs A New Set Of Drivers

Seeking Alpha: Cemex Trying To Rebuild Support

Cemex (NYSE:CX) has been an absolutely lousy stock since the last time I wrote about it, falling more than 40%. That's dramatically worse than the performance of Italy's Buzzi (OTCPK:BZZUY), Vulcan Materials (NYSE:VMC), and Martin Marietta Materials (NYSE:MLM), but actually a bit better than LafargeHolcim (OTCPK:HCMLY) and the shares of Cementos Argos (OTCPK:CMTOY) which were in basically the same performance boat through the end of 2015.

Cemex can tie its poor performance to a number of factors, but most particularly to painful adverse currency moves and worries about the company's volume/market share in key markets like Mexico and Colombia due both to the economic health of those countries and the company's own pricing decisions. Add in weak energy markets and a slow recovery in U.S. construction, and 2015 wasn't the sort of year that anybody was expecting.

Cemex was a pretty popular stock with the sell-side until the fall of 2015 (including appearances on multiple top idea lists), but now it's a "show me" story. The shares have already seen a decent bounce from desperation lows, and they don't look like a "can't miss" on the basis of discounted cash flow. That's a tricky metric for a cyclical commodities company, though, and the shares do look more interesting on the basis of EBITDA and full-cycle ROEs.

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Cemex Trying To Rebuild Support