Strong demand arising from solid momentum in the housing market, and repair and remodel and "do-it-yourself" (DIY) activities will benefit the companies under the Zacks
Building Products - Miscellaneous industry. In addition to stable end-market demand, benefits from geographic and product diversification strategies, operational excellence as well as accretive buyouts are expected to provide them with more strength. Masco Corporation ( MAS Quick Quote MAS - Free Report) , Owens Corning ( OC Quick Quote OC - Free Report) , Advanced Drainage Systems, Inc. ( WMS Quick Quote WMS - Free Report) , TopBuild Corp. ( BLD Quick Quote BLD - Free Report) and Construction Partners, Inc. ( ROAD Quick Quote ROAD - Free Report) are set to benefit from the above-mentioned tailwinds. Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers, and distributors of home improvement and building products like ceiling systems, doors, and windows as well as flooring and metal products. Some of the industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. The companies also manufacture expansion joints and structural bearings, ventilation products, ground mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners as well as government entities.
3 Trends Shaping the Future of the Building Products Industry
: Positive momentum of the housing market backed by the rising need for more work-at-home space and record-low mortgage rates is still acting as a major tailwind for the industry participants. Precisely, strong demand stemming from an improved residential construction market has been a major boon for the industry participants. Robust Housing & Repair & Remodeling Markets Meanwhile, work-from-home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more DIY and other home improvement projects. So, industry participants like Otis Worldwide Corporation ( OTIS Quick Quote OTIS - Free Report) and others stand to benefit from a sharp rise in housing as well as repair and remodeling activity. : The industry participants have been carrying out strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally-enabled solutions as well as advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth, and expand access to additional markets as well as products. Operational Excellence, Product Innovation & Acquisitions : Inflationary headwinds with respect to transportation cost, material cost and energy cost owing to supply chain disruptions have been a pressing concern. Also, rising labor costs are compressing margins. This is dampening the companies’ operating performance. Precisely, rising costs related to asphalt, resin and other input materials added to the negatives. Although the companies have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to persist in the near term as well. Supply Chain Woes & Inflation Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products – Miscellaneous industry is a 28-stock group within the broader Zacks
Construction sector. The industry currently carries a Zacks Industry Rank #106, which places it at the top 42% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Lags S&P 500 & Sector
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has risen 19.1% compared with the S&P 500’s growth of 32.5% and the broader sector’s 26.7% rally. One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing building products’ stocks, the industry trades at 16.3X versus the S&P 500’s 21.5X and the sector’s 14.3X.
Over the past five years, the industry has traded as high as 19.1X, as low as 7X and at a median of 13.7X, as the chart below shows. Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Building Product Stocks to Keep a Watch
We have selected two stocks from the Zacks universe of building products that currently carry a Zacks Rank #2 (Buy). We have also highlighted three other stocks carrying a Zacks Rank #3 (Hold) with solid prospects.
Construction Partners: Headquartered in Dothan, AL, this civil infrastructure company currently carries a Zacks Rank #2. Organic and inorganic growth opportunities in the attractive southeastern U.S. road construction/repair market are expected to drive the company’s growth. Overall, its competitive advantages — comprising vertically integrated operations, scale, solid hot mix asphalt production, a robust backlog, and strong growth via organic and acquisition strategies — are likely to aid the company in the near term. Importantly, Construction Partners has seen an upward estimate revision of 1.1% for fiscal 2022 earnings over the past 30 days. The stock has gained 18.5% year to date, performing better than the industry’s 7.3% rally. Earnings for fiscal 2022 are expected to grow 48.1%. Price and Consensus: ROAD TopBuild: Headquartered in Daytona Beach, FL, TopBuild is an installer and distributor of insulation and other building products, currently carrying a Zacks Rank #2. A systematic inorganic strategy will supplement organic growth, and expand its access to additional markets as well as products. Also, the company's strength in the Insulation Installation business, and improving repair and remodeling activities raise hopes. Importantly, TopBuild — which has gained 23.8% so far this year — has seen a 2.2% upward estimate revision for 2021 earnings over the past 60 days. Earnings for 2021 are expected to grow 47.1%. Price and Consensus: BLD Masco: Headquartered in Taylor, MI, Masco manufactures, sells, and installs home improvement and building products. The company has been gaining strength from strong segmental performance backed by robust U.S. housing market fundamentals, and repair & remodeling activities. Precisely, North American Plumbing continues to benefit Masco. Also, inorganic moves, cost-saving initiatives and industry-leading branded building products are adding to the bliss. The stock, carrying a Zacks Rank #3, has gained 10.3% year to date. The company’s earnings for 2021 are expected to increase 18.6%. Price and Consensus: MAS Advanced Drainage Systems: Headquartered in Hilliard, OH, this company provides innovative water management solutions in stormwater and on-site septic wastewater industries. Despite a challenging operating environment, the material conversion strategy, complete water management solutions and focus on key sales programs have been driving growth. It has been experiencing strong demand in residential and agriculture end markets as well as horizontal construction in the non-residential market. This Zacks Rank #3 stock has gained 28.3% year to date. The company’s earnings for fiscal 2022 are expected to increase 46%. Price and Consensus: WMS Owens Corning: Headquartered in Toledo, OH, this company produces and sells building material systems along with composite solutions. It has been benefiting from market-leading businesses, innovative products, and process technologies as well as capabilities. Positive momentum in residential end markets, particularly in the United States, improved manufacturing leverage and strong cost controls will likely help it deliver solid results. This Zacks Rank #3 stock has gained 20.4% year to date. The company’s earnings for 2021 are expected to increase 71.2%. Price and Consensus: OC