The Wall Street committee that curates the S&P 500 index, the most influential in global stock markets, shares one thing in common with Kim Jong-un’s cabinet and the upper echelons of Mossad: most of its members remain a mystery.
On the third Friday of March, June, September and December, the group of seven to 10 members (the exact number is closely guarded) of the S&P Dow Jones Indices committee gathers to consider tweaks to the pool of 500 companies, currently worth about $58 trillion (€49.4 trillion) combined.
While guided by almost 90 pages of rules and criteria – covering factors such as market values, trading volumes and profitability – the committee’s work is, in many ways, as much art as science.
[ CRH’s US move pays off with S&P 500 inclusionOpens in new window ]
The chairman of the group, S&P Global executive Dennis Lee, may not be a household name. But by adding or booting a company out of the index, his committee forces fund managers that track the index to either buy or dump a stock.
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More than a quarter of shares in the average S&P 500 company is now held by such passive investors, according to Goldman Sachs analysts.
It explains why CRH has seen its market value jump as much as 6.5 per cent this week to a record $85.1 billion, after S&P Dow Jones announced late last Friday that the Irish building materials and services group was one of three groups that will be joining the index on December 22nd.
“The inclusion, something that investors have been hoping for, should be a near-term catalyst to the shares as S&P index funds and exchange-traded funds (ETFs) will create an increase in demand for CRH shares,” said Garik Shmois, an analyst with Loop Capital in the US.
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CRH’s shares have soared more than 130 per cent since the group moved its main listing to the New York Stock Exchange two years ago.
Much of this has been down to investors being willing to give it a higher valuation relative to earnings. Companies listed in the Big Apple have historically traded on higher earnings multiples compared to European companies. CRH’s full-year adjusted earnings before interest, tax, depreciation and amortisation (ebitda) are on track to come in at about $7.65 billion this year, which would mark a 23 per cent increase over two years.
[ CRH shares spike to record high as group set to join S&P 500Opens in new window ]
North America, which CRH ventured into in 1978 through the purchase of a concrete products company in Utah, now accounts for about three-quarters of group earnings.
Securing entry to the S&P 500 was the main goal behind the US listing. But it was never guaranteed, given the opaque and discretionary way the index committee operates.
Davy analyst Colin Sheridan estimates that inclusion in the S&P 500 will automatically create demand for around 17 per cent of CRH’s outstanding shares.
But that’s only part of the story – joining the index will also raise CRH’s profile and put it squarely on the radar of active fund managers.
Chief executive Jim Mintern’s strategy, announced at a capital markets day in New York in September, some nine months into the job, has also gone down well on Wall Street.
He is targeting annual revenue growth of 7-9 per cent out to 2030 and ebitda margins of 22-24 per cent over the period.
The margin goal would mark a step up from the rate of 19.5 per cent posted last year. The company’s margins have doubled over the 11-year period in which CRH was led by Albert Manifold, driven as the group moved from largely being a seller of cement and other base materials into full-scale construction services, with higher pricing power.
Mintern also plans to spend $40 billion on investment and cash returns to shareholders over the next five years.
CRH’s focus is on four key areas: aggregates, cement and sustainable alternatives, roads and water. It sees these benefiting from three infrastructure mega-trends: continuing investment in the transport system, from roads to airports; a need to develop water management; and the re-industrialisation of the US.
The group has limited exposure to the US residential development sector, where activity has been weak for some time amid high interest rates. While the Federal Reserve this week cut official rates for the sixth time in 15 months, Mintern said last month that it will be late 2026 before the benefits are felt in the country’s housing market.
Infrastructure is by far its biggest segment. CRH has repeatedly said in recent months that, as the largest roadbuilder and paver in North America, it remains well positioned as some 60 per cent of Infrastructure Investment and Jobs Act 2021 motorway funding has yet to be deployed. Meanwhile, state-level transportation budgets are on track to rise 6 per cent, according to US Department of Transport projections.
The consensus share price target among 29 analysts that currently cover the stock points to it rising about 8 per cent over the next 12 months, to $136.75, according to Bloomberg data.
However, Sheridan at Davy said in a note to clients this week that he reckons CRH’s stock should narrow its 30 per cent discount to fellow S&P 500 construction materials groups Martin Marietta and Vulcan in time.
Others have gone a step further in the wake of the S&P 500 inclusion announcement. RBC Capital and Vertical Research have each upgraded its share price objective in the wake of the S&P 500 inclusion announcement to levels that would give CRH a market capitalisation of more than $100 billion.
There are some big international companies headquartered in Ireland, largely for tax reasons, valued at well in excess of that figure. Accenture is currently worth $167 billion, while Eaton Corporation is hovering around $136 billion and Medtronic at $128 billion.
But if CRH cracks $100 billion, it would be the first home-grown Irish company in history to do so.
