- Several Wall Street economists think Biden's Build Back Better bill, which includes hundreds of billions of dollars in funds to fight climate change, will be a big deal for infrastructure companies.
- "Nothing in DC is 100% sure, but I think the odds are very high, I'd say 80-90% that we get some sort of BBB," said Mike Feroli, chief U.S. economist at J.P. Morgan.
- That could spell a banner year ahead for stocks like steelmaker Nucor or gravel maker Vulcan Materials, both of which are expected to see an uptick in sales thanks to investment in infrastructure.
Wall Street economists believe some version of President Joe Biden's nearly $2 trillion Build Back Better plan will become law.
And they also think the measure, which includes hundreds of billions of dollars in funds to fight climate change, will be another big deal for the infrastructure industry on the heels of a separate, $1 trillion public works law the president signed earlier this fall.
Economists at Goldman Sachs, Evercore ISI, Morgan Stanley and J.P. Morgan have all written in recent weeks that they believe it's a matter of time until the Senate passes Biden's Build Back Better legislation.
That could mean a business boom for some of the country's biggest construction and materials companies, they say.
"Nothing in DC is 100% sure, but I think the odds are very high, I'd say 80-90% that we get some sort of BBB," Mike Feroli, chief U.S. economist at J.P. Morgan, told CNBC.
That could spell a banner year ahead for stocks like steelmaker Nucor or gravel maker Vulcan Materials, both of which are expected to see an uptick in sales thanks to the forthcoming investment in surface infrastructure.
Tough road, big destination
Wall Street's confidence in the administration's sprawling climate, health-care and education bill may come as a surprise to some on Capitol Hill, where Senate Majority Leader Chuck Schumer, D-N.Y., is working overtime to strike compromise among fellow Democrats.
Schumer will need to persuade all 50 members of his caucus — ranging from conservative Sen. Joe Manchin of West Virginia to democratic socialist Sen. Bernie Sanders of Vermont — to agree on a single version of the bill.
Disagreements among Democrats have already led the party to cut some high-profile provisions, such as a paid-leave program, and prompted some commentators to wonder about the bill's odds in the Senate.
While much of the public may know Build Back Better for its broadest aims, such as national decarbonization and reduced pharmaceutical costs, Sam Ricketts says it's also another major step for American infrastructure.
Ricketts, a senior fellow at the left-leaning Center for American Progress, told CNBC on Saturday that Build Back Better builds upon the separate, $1 trillion bipartisan infrastructure bill Biden signed in November.
The bipartisan bill makes up for "what had been a lack of sustained investment in America's traditional infrastructure: Highways and roads and bridges, transmission lines, water infrastructure," Ricketts said. "The Build Back Better Act is an infrastructure bill not just for the 21st century, but for the future."
Prior to joining the think tank, Ricketts served as climate director for the presidential campaign of Gov. Jay Inslee, D-Wa., where he helped draft the team's environmental and energy policy. He later co-founded Evergreen, an organization he and other Inslee campaign alumni use to advance climate legislation.
"We need a stable, secure electric grid. But we also need it to be a stable, secure and clean electric grid to avoid the worst impacts of climate change, and to build what is a true 21st-century, clean-energy economy, not last century's fossil-fuel powered, polluting economy," he said of the Build Back Better legislation.
A lot needs to happen to make that a reality, Ricketts said.
American manufacturers need to develop hundreds of miles of new electrical lines, energy producers need to overhaul business models to focus on battery power and lithium, and engineering companies need to consider rising sea levels and erosion when deciding where to build more efficient transportation infrastructure.
And, to Wall Street, that all means more revenue, more jobs and more profits from the companies that build infrastructure.
While the bill is subject to change, a key provision of the current Build Back Better draft is a package of some $300 billion in tax incentives and rebates for clean energy, electric vehicles, clean buildings, and decarbonization.
The framework will, for example, cut the cost of installing rooftop solar for a home by about 30%, and will lower the cost of a U.S.-made electric vehicle produced using American materials and union labor by $12,500, according to the White House.
"Think renewable energy, think transmission and energy storage, think the ability of carbon capture those technologies to decarbonize the grid," Ricketts said. Build Back Better "is every bit as much of, and I would argue an even more important infrastructure bill, than the infrastructure bill the president's already signed."
Costs, benefits, analysis
Despite ongoing haggling on Capitol Hill, investors remain unfazed on the bill's odds and its upside for U.S. manufacturers and construction companies. Where some of the Street's economists differ is on their predictions on Build Back Better's final price tag.
"The Senate has always been the highest hurdle for the BBB legislation to clear and we expect the legislation to change before it passes in that chamber," Goldman Sachs chief economist Jan Hatzius wrote on Nov. 22. "Overall, we expect the bill to shrink somewhat from more than $2 trillion in new spending and tax benefits in the House-passed bill to a range of $1.75 to $2 trillion over 10 years."
J.P. Morgan's Feroli, who expects a Build Back Better bill in the $1 trillion to $1.5 trillion range, wrote that the impact of the latest measures will be more spread out versus the Covid-19 emergency measures like the CARES Act or the American Rescue Plan.
Consumers are sooner to feel the impact of an expanded child tax credit next year than they will smoother roads or more charging stations for electric cars, he wrote. It could be years before the majority of everyday Americans are driving electric vehicles.
Stock traders, on the other hand, see a different timetable. Those looking to put money to work before major infrastructure projects begin are likely looking to scoop up shares of their favorite materials or industrials stocks now.
"In our view, even a conservative estimate of the ultimate outcome would be a still robust US $2.5 [trillion] between both plans over 10 years," Michael Zezas, head of U.S. public policy research at Morgan Stanley, wrote on Wednesday.
"While that number might fall short of some progressives' ambitions, it should get your attention," he added. Such a mammoth amount of cash would drive an "infrastructure 'supercycle,'" a powerful, nationwide demand for materials like cement and asphalt – and a rally across the broader construction sector.
Investors already seem to favor certain stocks that stand to benefit from projects to improve the nation's highway and bridges.
Vulcan is up 33% this year to the S&P 500's 22%, while Nucor has seen its stock more than double in value. PAVE, a fund that offers investors exposure to a wide range of infrastructure stocks, is up 32%.
Jacobs Engineering Group, a construction-services companies that helps governments and private firms design and build, generates about 20% of its annual revenue from U.S. government contracts. It projects often include work for the U.S. Navy or Department of Energy.
Jacobs, which has about 52,000 employees, also works with state governments on the types of projects that Build Back Better advocates say are critical to reducing U.S. carbon emissions and are likely to feature in the final legislation.
It did so in Texas, where it served as project manager for the new TEXRail line, which opened in 2019. The new commuter rail transverses 27 miles of Texas land over nine stop and three cities, including Fort Worth, North Richland Hills and Grapevine to Dallas-Fort Worth International Airport.
Jacobs equity is up 46% this year.
— CNBC's Michael Bloom contributed to this report.