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Benefiting from the Rebuilding

By Matt Morrow From Standard & Poor's MarketScope

TV screens have been filled with pictures of law-enforcement officers, military personnel, and relief workers aiding the battered Gulf region in Katrina's destructive wake. But as the recovery effort kicks into high gear, numerous industrial companies will be needed to aid in the rebuilding of the Gulf's infrastructure.

S&P equity analyst Anthony Fiore expects demand for construction-related equipment to climb in the months ahead. Rebuilding roadways alone could account for a large portion, with some experts saying post-Katrina highway work could cost upwards of $2 billion.

INFRASTRUCTURE DEMANDS. This perceived ramping up of business will likely add to the higher revenues that many industrial companies will see following President Bush's signing of the $286.4 billion Transportation bill in August. "My own view is that the federal money [to rebuild the Gulf Coast region] is likely to be in addition to that provided by the new highway bill," says Fiore.

Fiore has identified some companies among those he follows that should play a part in the rebuilding of New Orleans and other areas of the Gulf Coast. They are Quixote (QUIX

; recent price, $23; S&P investment rank 5 STARS, strong buy), Manitowoc (MTW

; $47; 4 STARS, buy), Caterpillar (CAT

; $58; 3 STARS, hold), and Astec Industries (ASTE

; $30; 3 STARS).

Manitowoc, a diversified manufacturer of cranes, food-service equipment, and marine vessels, is likely to benefit from these unfortunate events as its results are affected primarily by the level of heavy construction and infrastructure projects. Even before Katrina became big news, Fiore believed demand trends for Manitowoc's services remained favorable. Improved demand should continue to widen the company's profit margins as 2005 progresses.

ROADS TO RECOVERY. Quixote is a leading developer, maker, and marketer of highway and transportation safety products. Its products aim to improve safety on the roads by minimizing the severity of crashes that occur and by preventing crashes through the direction or guidance of traffic. Fiore's strong buy recommendation is predicated on his belief that relationships with distributors across the U.S. have enabled Quixote to bring new highway-safety products to market. He expects these to be increasingly high-tech, wider-margin products.

The new transportation law provides funding for states through 2009. In August, Quixote said it didn't expect to realize the full benefit of the law's passage until the second half of fiscal 2006 (ending June). Many people anticipate that Congress will approve as much as $100 million in emergency road-repair funding for the Katrina-affected regions. It's not yet known how much -- if any -- of this spending will be on the highway-safety products that Quixote makes.

Caterpillar, whose distinctive yellow machines are in operation in nearly every country on earth, is likely to be present when rebuilding commences. Fiore believes "there will likely be a need for Caterpillar's earth-moving machines to clean and rebuild" in areas affected by Hurricane Katrina. He also anticipates increased demand for Cat's power generators in order to get electricity back on-line.

LONG PROCESS. Astec, a manufacturer of equipment used mostly in road-building and related construction activities, should also be in line for some revenue opportunities. Fiore believes demand for its products will benefit significantly from the recent passage of the transportation law.

Efforts to restore daily life in the affected areas to a semblance of normalcy will no doubt be lengthy -- and costly. While no one likes to be seen as profiting from tragedy, these companies' products and services could play a key role as the Gulf region rebuilds after Katrina's staggering blow.

Morrow is a reporter for Standard & Poor's Global Editorial Operations

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