For companies that do the unglamorous work of pouring cement, crushing stones, and hauling earth, President Barack Obama's $50 billion proposal outlined on Sept. 6 to rebuild U.S. roads, railways, and runways is welcome relief amid unrelenting economic gloom. If approved by Congress (an uncertain proposition in an election year) Obama's plan would pick up the slack when most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act is expected to be spent next year, says Mike Betts, an analyst with London-based Jefferies.
The American Road & Transportation Builders Assn., a lobbying group, pushed hard for the fresh spending and noted that "infrastructure investment creates jobs, improves our global competitiveness, and fuels economic growth" in a statement after the President's announcement. It would also help boost the 2011 earnings results of companies ranging from Caterpillar (CAT), the world's biggest maker of construction and mining equipment, to Vulcan Materials (VMC), the No. 1 U.S. gravel supplier, according to Betts.
Obama wants Congress to approve spending to rebuild 150,000 miles of road, construct and maintain 4,000 miles of railroad, and refurbish 150 miles of runways. The plan would be an "up-front investment" that would work in tandem with normal transportation spending bills passed by Congress. The House in July approved $45.2 billion of highway construction funds for the fiscal year that begins Oct. 1, a 10 percent increase from the current period. The Senate needs to approve its version of the bill.
Senator Jim Inhofe, the ranking Republican on the Senate Environment & Public Works Committee, dismissed Obama's proposal as a "show for the election." While federal, state, and local highway spending will probably total almost $80 billion this year and has been propped up by stimulus funds, overall U.S. construction spending has been declining since October 2007, resulting in the loss of almost 2 million jobs, according to Betts. (Transportation spending accounts for less than 5 percent of total construction spending in the U.S.)
Without Obama's latest initiative, highway spending may fall as much as 5 percent next year, Betts says. If Congress goes along with Obama's plan, companies such as engineering and construction company Fluor (FLR) and Terex (TEX), which makes mining trucks and hydraulic shovels, would probably benefit, according to Clint Currie, an industry analyst with Concept Capital's Washington Research Group. That said, he only gives Obama's ambitious infrastructure spending program, given expected Republican opposition, a 50 percent chance of becoming a reality.
The bottom line: President Obama's $50 billion infrastructure plan would be a boost to construction and transportation companies if Congress signs off.