David Einhorn, Martin Marietta story, corrected for reference to Einhorn's short of Saint Joe Company. An earlier version of the story incorrectly referred to St. Jude Medical.
NEW YORK ( TheStreet) -- Martin Marietta (MLM - Get Report) is David Einhorn's new favorite stock to short. While that's a bad development for Martin Marietta's shareholders, the market reaction to Einhorn's short may reflect positively on its $6.7 billion hostile bid for competitor construction aggregates giant Vulcan Materials (VMC - Get Report), which seemed all but dead earlier in May.
A recent Delaware court ruling and Vulcan Materials' insistence on staying independent made Martin Marietta's takeover attempt extremely challenged, but the near-identical late Wednesday share tumble of both companies after Einhorn revealed Martin Marietta as a short target signals that traders are still betting that the unsolicited stock offer will eventually succeed, even if terms and conditions change.
Einhorn was widely expected to disclose a short position in Herbalife (HLF) at Wednesday's Ira Sohn Investor Conference in New York. Instead, the famed short seller -- who's tangled with Green Mountain Coffee Roasters (GMCR), real estate developer The Saint Joe Company (JOE) and gained his prominence for a bold call against Lehman Brothers ahead of its demise -- revealed the surprising move against Martin Marietta.Martin Marietta shares fell over 8% to $68.60 in Wednesday trading, meanwhile Herbalife rallied over 16% to $49.51. During Herbalife's first quarter earnings call, Einhorn pressed the company on its accounting and raised questions about its growth prospects, but it is Martin Marietta's earnings that Einhorn called out as being richly valued. "Recent earnings benefited from one time fiscal stimulus that is about to wind down," Einhorn said at the conference. Those comments aren't just a negative for Martin Marietta, they also reflect poorly on Vulcan's 2012 outlook. Both companies are the top two players in producing construction aggregates or crushed gravel and stone that's used to build roads and other infrastructure. "We don't believe Mr. Einhorn's comments regarding valuation as measured by a P/E basis represent anything new," wrote Wells Fargo analyst Adam Rudiger in a note to clients reacting to Einhorn's short. While Einhorn focused on Martin Marietta's share valuation at a price of 35 times forward earnings as a key to his short position, Rudiger argues it may be the wrong valuation metric. "