Construction Partners, Inc. ROAD or CPI, entered into a definitive agreement to acquire Asphalt Inc., LLC, doing business as Lone Star Paving. Based in Austin, TX, Lone Star focuses on asphalt manufacturing and paving. The company operates in high-growth markets with 10 hot-mix asphalt plants, four aggregate facilities and one liquid asphalt terminal across central Texas.
This acquisition is expected to enhance Construction Partners' earnings and contribute $530 million in revenues and $120 million in Adjusted EBITDA for fiscal 2025.
ROAD’s shares rose 13.4% during the trading session on Oct. 21, 2024.
Details of the Acquisition Agreement
Per the deal, CPI will acquire all outstanding membership units of Lone Star for $654 million in cash and 3 million shares of its Class A common stock. The company will also pay the sellers an amount equal to Lone Star’s working capital at the closing in four quarterly installments.
It will also purchase an entity holding certain real property for $30 million in cash once specific governmental approvals are received. ROAD plans to finance the cash portion through debt financing. This transaction is expected to close in the first quarter of fiscal 2025, pending regulatory approvals and customary conditions.
Strategic Objectives of the Acquisition
This strategic move aligns with CPI's long-term growth plan of expanding into new states by acquiring platform companies with strong local management teams and solid reputations. The acquisition of Lone Star adds significant capabilities. Through this acquisition, ROAD will add three of the fastest-growing markets in the country to its geographic footprint, primarily serving the rapidly expanding Austin, San Antonio, TX and Temple-Killeen metropolitan areas. Texas features more than 700,000 lane miles supported by the largest state transportation funding program in the United States. This program provides stable funding sources and the highest allocation from the Infrastructure Investment and Jobs Act.
The acquisition exemplifies CPI's commitment to partnering with experienced local operators. This approach allows the company to further support and enhance these businesses within its larger organization. Construction Partners aims to execute its growth strategy while leveraging regional funding opportunities. The company remains focused on improving margins through better local market performance and expanding vertical integration of construction materials and services.
Lone Star will enhance ROAD’s presence as the company enters its seventh state. This platform company operates in central Texas and utilizes a vertical integration strategy to manage volatility and improve margins. The transaction is expected to significantly advance CPI's ROAD-Map 2027 goals, including achieving an Adjusted EBITDA Margin target of 13% to 14% in fiscal 2025, two years ahead of schedule.
ROAD’s YTD Price Performance
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In the year-to-date (YTD) period, this vertically integrated civil infrastructure company’s shares have outperformed the Zacks Building Products - Miscellaneous industry. The stock has rallied 94.6% compared with the industry’s growth of 24.1%. The company is benefiting from strong demand for infrastructure services across its regions, supported by increased funding for public projects at federal, state and local levels. Also, the emphasis on accretive acquisitions, a solid backlog level and strategic business initiatives are added positives.
Zacks Rank & Key Picks
Construction Partners carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks from the Zacks Construction sector are:
Knife River Corporation KNF presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
It has a trailing four-quarter earnings surprise of 33%, on average. Shares of KNF have surged 93.3% in the past year. The Zacks Consensus Estimate for KNF’s 2024 sales and earnings per share (EPS) implies an increase of 3.2% and 15.2%, respectively, from the prior-year levels.
KBR, Inc. KBR currently carries a Zacks Rank #2 (Buy). KBR delivered a trailing four-quarter earnings surprise of 4.8%, on average. The stock has gained 21.5% in the past year.
The Zacks Consensus Estimate for KBR’s 2024 sales and EPS indicates an increase of 9.8% and 11.7%, respectively, from a year ago.
KB Home KBH currently carries a Zacks Rank #2. KBH delivered a trailing four-quarter earnings surprise of 10.8%, on average. The stock has gained 87.7% in the past year.
The Zacks Consensus Estimate for KBH’s fiscal 2024 sales and EPS indicates an increase of 7.6% and 19.8%, respectively, from a year ago.
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