The aggregates industry is fragmented in the United States and several companies have the financial wherewithal to acquire other businesses, according to the report. More than 5,000 companies operate over 10,000 facilities, many of which are highly localized with significant barriers to entry.

“Balance sheet strength across our coverage is notable, with most aggregates/cement companies under 1.5 times net debt to earnings before interest taxes, depreciation and amortization,” according to Morgan Stanley. “The ability to lever up to two to three times, combined with robust cash flow generation, we estimate positions companies to be able to deploy ample capital to either M&A or shareholder returns.”

As part of its analysis, the analysts reiterated their Overweight investment rating on Martin Marietta Materials (NYSE:MLM), Holcim (OTCPK:HCMLF) (OTCPK:HCMLY), Heidelberg Materials (OTCPK:HDELY) (OTCPK:HLBZF) and GCC (OTCPK:GCWOF).

In the United States, Martin Marietta Materials (MLM) and Vulcan Materials (NYSE:VMC) “have been clear in their intentions to continue to deploy capital toward inorganic growth,” according to Morgan Stanley. “We continue to view U.S. aggregates as our preferred way of maintaining exposure to U.S. construction themes.”