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Beacon Roofing (BECN) Rides on Tax Reform & Acquisitions

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On Feb 26, we issued an updated research report on Beacon Roofing Supply, Inc. (BECN - Free Report) . The company is poised to gain from the tax reform, favorable pricing trends and a likely stronger demand contribution from hurricanes. Further, the acquisition of Allied Building Products will reinforce its roofing supplies business.

U.S. Tax Reform to Aid Beacon Roofing’s Earnings

In fiscal 2018, Beacon Roofing is poised to benefit from the tax reform. The company estimates that changes to the U.S. federal rate will reduce its long-term effective tax rate from the range of 38-39% to the range of 26-27%. The tax savings will be utilized to further improve the company’s balance sheet, pursue additional growth avenues and invest in core business. Considering these factors, Beacon Roofing increased its adjusted EPS guidance for the fiscal to the range of $3.40-$3.70. This new range is 45 cents above the prior outlook, primarily reflecting the impact of the tax reform.

Hurricane-Demand Contribution to Drive Growth

Beacon Roofing maintained its revenue outlook range of $6.6-$6.9 billion for the fiscal. The company remains optimistic about annual revenues on the back of stellar first-quarter fiscal 2018 results and a likely stronger hurricane-demand contribution. The incremental demand contributions from hurricanes Harvey and Irma will be around $40 million for the fiscal, in which about 60% of the contribution will be from Florida and the remainder from Texas.

Favorable Pricing Remains a Tailwind

On the pricing front, Beacon Roofing stated that the company’s overall pricing expanded 50-75 basis points during the fiscal first-quarter. Further, the company anticipates encouraging pricing trends in markets experiencing strong levels of demand.

Acquisition of Allied Building Products to Boost Results

Beacon Roofing’s acquisition of Allied Building Products will reinforce the former’s roofing supplies business. The buyout will also add a wallboard and acoustical ceiling-tile wholesale business to Beacon Roofing. The company has been quickly progressing toward the integration of the business, since the deal’s closure. It remains committed to achieve $110 million in cost synergies within two years of accomplishment and the early signs are very positive across all areas of savings.

Share Price Performance

Beacon Roofing has underperformed its industry with respect to price performance over the past year due to competitive pricing pressures. The stock has gained around 18%, while the industry has recorded growth of 26% during the same time frame.

 

Zacks Rank & Other Stocks to Consider

Beacon Roofing currently carries a Zacks Rank #2 (Buy).

Some other similarly-ranked stocks in the same sector are Asbury Automotive Group, Inc. (ABG - Free Report) , Fastenal Company (FAST - Free Report) and Lowe's Companies, Inc. (LOW - Free Report) . All three stocks carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Asbury Automotive has a long-term earnings growth rate of 10.8%. Its shares have rallied 35.9%, over the past six months.

Fastenal Company has a long-term earnings growth rate of 14%. The company’s shares have been up 34.8% during the same time frame.

Lowe's has a long-term earnings growth rate of 18.4%. The stock has gained 32.1% in six months’ time.

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