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