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Why Summit Materials Stock Jumped 12% in Early Trading Today

By Reuben Gregg Brewer - Jan 6, 2021 at 11:32AM

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The construction industry supplier got a boost from an analyst call that sees good things ahead for the stock.

What happened

Shares of aggregate, cement, and asphalt producer Summit Materials ( SUM 1.49% ) rose as much as 12% in early trading on Wednesday. By roughly 11 a.m. EST today, the shares were still holding on to most of that gain, up roughly 11%. The big news driving that price advance came out of financial services firm Stephens.  

So what

Stephens analyst Trey Grooms upgraded Summit from equal weight to overweight, and the stock's price target rose from $19 per share to $25. Investors tend to like it when Wall Street analysts upgrade stocks, so it's hardly shocking that Summit shares rose on the news.

Two people looking at blueprints at a construction site.

Image source: Getty Images.

The rationale behind the upgrade was big-picture in nature and still a bit of an uncertainty. Grooms believes that a sizable infrastructure spending bill will be passed in 2021. This, in turn, will lead to increased demand for the types of products that Summit sells and, as you might expect, improved company performance.

Far from a short-term call, the analyst also believes that 2022 could be strong, as Grooms believes that robust residential construction markets in 2021 are likely to lead to an increase in nonresidential building in 2022. That would boost results in 2022, as well.

Now what

If the story that the Stephens analyst weaves plays out as projected, 2021 and 2022 could indeed bring good years for Summit. At this point, Grooms is simply making an educated guess at what the future holds, so while investors were excited by the upgrade, a grain of salt is still in order since there are no crystal balls on Wall Street. Bu all analyst calls should probably be taken with some salt -- just in case.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Summit Materials, Inc. Stock Quote
Summit Materials, Inc.
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