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What's Behind Vulcan's Climb

Inelastic demand means suppliers can raise prices at a rate that is faster than the decline in demand. This is exactly what Vulcan has been doing.

Except for the fourth quarter, Vulcan has experienced inelastic demand going back at least seven quarters. Thus revenue continues to rise on an annual basis.

The question, of course, is whether this trend can continue. Vulcan went up against a tough comp in the first quarter (prices were up 16% in the prior year's quarter) and still reported impressive 9% growth.

In the second quarter last year, prices were up 15%, which makes for another difficult comparable looming ahead.

At roughly $84, Vulcan's stock is now trading at 23 times estimated 2008 earnings per share. Typically, Vulcan and other aggregates suppliers carry price-to-earnings ratios in the range of mid-teens to low-20s, says Kasprzak, the analyst at BB&T.

The multiple looks a bit high but can probably hold if the economy is really going to improve by the end of 2008.

Then again, the recent run in the stock may just be part of a overly optimistic cyclical rally that may not last.

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