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5 Stocks to Buy From a Thriving Building Products Industry
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Increased government infrastructure spending is bolstering companies in the Zacks Building Products - Miscellaneous industry. Although potential challenges like macroeconomic uncertainties, new product investments, and rising raw material costs could squeeze margins, firms such as TopBuild Corp. (BLD - Free Report) , Knife River Corporation (KNF - Free Report) , Frontdoor, Inc. (FTDR - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) , and Installed Building Products, Inc. (IBP - Free Report) stand to gain from increased repair and remodeling (R&R) projects, operational excellence, geographic and product diversification strategies, strategic acquisitions, and higher infrastructure investments.
Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors, windows, flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in the 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, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities.
3 Trends Shaping the Future of the Building Products Industry
U.S. Administration’s Infrastructural Spending & Improving Residential Market: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply-chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies. Meanwhile, as the industry players’ business prospects are highly correlated with U.S. housing market conditions and the R&R activity, solid momentum in the R&R markets and improving residential construction markets are expected to drive growth. Builders are now cautiously optimistic for 2024 as the lack of existing inventory is shifting demand to the new home market, thereby driving the demand for companies’ products in the industry.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been undertaking 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 and 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 and products.
Inflationary Woes: Inflationary headwinds with respect to transportation costs, material costs and energy costs have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Rising costs related to steel, asphalt, resin and other input materials are also hurting margins. Although the industry participants have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to be a concern.
Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply-chain initiatives, their profits may be affected.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products – Miscellaneous industry is a 25-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 26% 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 positive 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2023 and 2024 have been revised upward to $4.26 and $4.60 per share from $4.17 and $4.59, respectively.
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 Outperforms Sector, S&P 500
The Zacks Building Products – Miscellaneous industry has outperformed the broader Zacks Construction sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has rallied 36% compared with the broader sector’s 31% rise. Meanwhile, the Zacks S&P 500 composite has jumped 15.7% over the same period.
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 is trading at 14.5X versus the S&P 500’s 19.2X and the sector’s 15.3X.
Over the past five years, the industry has traded as high as 19.8X, as low as 6.9X and at a median of 14.4X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Frontdoor: Based in Memphis, TN, the company provides home service plans in the United States. The company is benefiting from impressive customer retention rates. Thanks to the robust awareness of the Frontdoor brand, it has been shifting its attention toward capitalizing on customer demand. This strategic move allows FTDR to redirect its marketing investments toward expanding its Direct-to-Consumer channel under the American Home Shield brand. Looking ahead, the company is committed to establishing a solid foundation by investing in its brand, technology infrastructure and enhancing productivity throughout the organization.
Frontdoor, a Zacks Rank #1 stock, has gained 68.2% year to date (YTD), outperforming the industry’s 40.3% rise. FTDR has seen an upward estimate revision of 23% and 23.8% for 2023 and 2024 earnings over the past 60 days to $2.03 per share and $2.34 per share, respectively. The estimated figure indicates 59.8% and 15.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 163.7%.
Price and Consensus: FTDR
Knife River: Headquartered in Bismarck, ND, this firm offers construction materials and contracting services throughout the United States, specializing in aggregates-based solutions. Knife River has effectively implemented its EDGE plan to enhance Adjusted EBITDA margins and achieve strategic objectives. A crucial component of this strategy involves optimizing pricing to fully capture the value of core products, including aggregates, ready-mix concrete, asphalt, and contracting services. The company has adopted a more judicious approach in selecting higher-margin projects within its contracting services division. Despite challenges, Knife River maintains a positive outlook on the long-term market strength, anticipating favorable impacts from local, state, and federal funding.
Knife River, a Zacks Rank #1 stock, has gained 75.1% since its inception on May 25, outperforming the industry’s 26% jump. KNF has seen an upward estimate revision of 30.2% and 22.1% for 2023 and 2024 earnings over the past 30 days to $3.15 per share and $3.48 per share, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in the last reported quarter by 41%. It currently holds a VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: KNF
TopBuild: Headquartered in Daytona Beach, FL, TopBuild is an installer and distributor of insulation and other building products. The company is experiencing significant advantages due to a strong installation business and well-planned acquisitions. Additionally, improvements in operational efficiency, leveraging fixed costs, and implementing measures to mitigate inflation are all contributing to an increase in profit margins.
TopBuild, a Zacks Rank #2 stock, has gained 101.8% YTD. BLD has seen an upward estimate revision of 2.5% and 2.7% for 2023 and 2024 earnings over the past 30 days to $19.51 per share and $20.40 per share, respectively. The estimated figure indicates 14% and 4.6% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.3%. It currently holds a VGM Score of A.
Price and Consensus: BLD
Gibraltar Industries: Buffalo, NY-based Gibraltar manufactures and distributes products to the industrial and buildings market. The company is well-positioned to capitalize on its robust Three-Pillar growth strategy and the promising prospects of its Infrastructure segment. Furthermore, factors such as enhanced solar module supply, greater volume, supply-chain optimization efforts, cost alignment, improved field operations efficiency, business diversification, and the successful implementation of the 80/20 initiatives are all contributing positively to its outlook.
Gibraltar, a Zacks Rank #2 stock, has gained 51.7% YTD. ROCK has seen an upward estimate revision of 4% and 2.7% for 2023 and 2024 earnings over the past 30 days to $4.13 per share and $4.63 per share, respectively. The estimated figure indicates 21.5% and 12.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.8%. It currently holds a VGM Score of A.
Price and Consensus: ROCK
Installed Building Products: This Columbus, OH-based company is one of the nation's leading new residential insulation installers and a diversified installer of complementary building products. The company is poised to gain from favorable pricing strategies, geographic and product diversification strategies, as well as solid acquisitions despite the cyclicality of the U.S. housing market. IBP continues to prioritize profitable growth through its proven strategy of acquiring well-run installers of insulation and complementary building products.
Installed Building, a Zacks Rank #2 stock, has gained 87.4% YTD. IBP has seen an upward estimate revision of 2.9% and 5.8% for 2023 and 2024 earnings over the past 30 days to $10.00 per share and $10.81 per share, respectively. The estimated figure indicates 11.7% and 8.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 7.3%. It currently holds a VGM Score of A.
Price and Consensus: IBP
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5 Stocks to Buy From a Thriving Building Products Industry
Increased government infrastructure spending is bolstering companies in the Zacks Building Products - Miscellaneous industry. Although potential challenges like macroeconomic uncertainties, new product investments, and rising raw material costs could squeeze margins, firms such as TopBuild Corp. (BLD - Free Report) , Knife River Corporation (KNF - Free Report) , Frontdoor, Inc. (FTDR - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) , and Installed Building Products, Inc. (IBP - Free Report) stand to gain from increased repair and remodeling (R&R) projects, operational excellence, geographic and product diversification strategies, strategic acquisitions, and higher infrastructure investments.
Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors, windows, flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in the 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, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities.
3 Trends Shaping the Future of the Building Products Industry
U.S. Administration’s Infrastructural Spending & Improving Residential Market: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply-chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies. Meanwhile, as the industry players’ business prospects are highly correlated with U.S. housing market conditions and the R&R activity, solid momentum in the R&R markets and improving residential construction markets are expected to drive growth. Builders are now cautiously optimistic for 2024 as the lack of existing inventory is shifting demand to the new home market, thereby driving the demand for companies’ products in the industry.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been undertaking 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 and 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 and products.
Inflationary Woes: Inflationary headwinds with respect to transportation costs, material costs and energy costs have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Rising costs related to steel, asphalt, resin and other input materials are also hurting margins. Although the industry participants have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to be a concern.
Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply-chain initiatives, their profits may be affected.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products – Miscellaneous industry is a 25-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 26% 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 positive 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2023 and 2024 have been revised upward to $4.26 and $4.60 per share from $4.17 and $4.59, respectively.
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 Outperforms Sector, S&P 500
The Zacks Building Products – Miscellaneous industry has outperformed the broader Zacks Construction sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has rallied 36% compared with the broader sector’s 31% rise. Meanwhile, the Zacks S&P 500 composite has jumped 15.7% over the same period.
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 is trading at 14.5X versus the S&P 500’s 19.2X and the sector’s 15.3X.
Over the past five years, the industry has traded as high as 19.8X, as low as 6.9X and at a median of 14.4X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Building Product Stocks to Buy Now
We have selected five stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Frontdoor: Based in Memphis, TN, the company provides home service plans in the United States. The company is benefiting from impressive customer retention rates. Thanks to the robust awareness of the Frontdoor brand, it has been shifting its attention toward capitalizing on customer demand. This strategic move allows FTDR to redirect its marketing investments toward expanding its Direct-to-Consumer channel under the American Home Shield brand. Looking ahead, the company is committed to establishing a solid foundation by investing in its brand, technology infrastructure and enhancing productivity throughout the organization.
Frontdoor, a Zacks Rank #1 stock, has gained 68.2% year to date (YTD), outperforming the industry’s 40.3% rise. FTDR has seen an upward estimate revision of 23% and 23.8% for 2023 and 2024 earnings over the past 60 days to $2.03 per share and $2.34 per share, respectively. The estimated figure indicates 59.8% and 15.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 163.7%.
Price and Consensus: FTDR
Knife River: Headquartered in Bismarck, ND, this firm offers construction materials and contracting services throughout the United States, specializing in aggregates-based solutions. Knife River has effectively implemented its EDGE plan to enhance Adjusted EBITDA margins and achieve strategic objectives. A crucial component of this strategy involves optimizing pricing to fully capture the value of core products, including aggregates, ready-mix concrete, asphalt, and contracting services. The company has adopted a more judicious approach in selecting higher-margin projects within its contracting services division. Despite challenges, Knife River maintains a positive outlook on the long-term market strength, anticipating favorable impacts from local, state, and federal funding.
Knife River, a Zacks Rank #1 stock, has gained 75.1% since its inception on May 25, outperforming the industry’s 26% jump. KNF has seen an upward estimate revision of 30.2% and 22.1% for 2023 and 2024 earnings over the past 30 days to $3.15 per share and $3.48 per share, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in the last reported quarter by 41%. It currently holds a VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: KNF
TopBuild: Headquartered in Daytona Beach, FL, TopBuild is an installer and distributor of insulation and other building products. The company is experiencing significant advantages due to a strong installation business and well-planned acquisitions. Additionally, improvements in operational efficiency, leveraging fixed costs, and implementing measures to mitigate inflation are all contributing to an increase in profit margins.
TopBuild, a Zacks Rank #2 stock, has gained 101.8% YTD. BLD has seen an upward estimate revision of 2.5% and 2.7% for 2023 and 2024 earnings over the past 30 days to $19.51 per share and $20.40 per share, respectively. The estimated figure indicates 14% and 4.6% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.3%. It currently holds a VGM Score of A.
Price and Consensus: BLD
Gibraltar Industries: Buffalo, NY-based Gibraltar manufactures and distributes products to the industrial and buildings market. The company is well-positioned to capitalize on its robust Three-Pillar growth strategy and the promising prospects of its Infrastructure segment. Furthermore, factors such as enhanced solar module supply, greater volume, supply-chain optimization efforts, cost alignment, improved field operations efficiency, business diversification, and the successful implementation of the 80/20 initiatives are all contributing positively to its outlook.
Gibraltar, a Zacks Rank #2 stock, has gained 51.7% YTD. ROCK has seen an upward estimate revision of 4% and 2.7% for 2023 and 2024 earnings over the past 30 days to $4.13 per share and $4.63 per share, respectively. The estimated figure indicates 21.5% and 12.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.8%. It currently holds a VGM Score of A.
Price and Consensus: ROCK
Installed Building Products: This Columbus, OH-based company is one of the nation's leading new residential insulation installers and a diversified installer of complementary building products. The company is poised to gain from favorable pricing strategies, geographic and product diversification strategies, as well as solid acquisitions despite the cyclicality of the U.S. housing market. IBP continues to prioritize profitable growth through its proven strategy of acquiring well-run installers of insulation and complementary building products.
Installed Building, a Zacks Rank #2 stock, has gained 87.4% YTD. IBP has seen an upward estimate revision of 2.9% and 5.8% for 2023 and 2024 earnings over the past 30 days to $10.00 per share and $10.81 per share, respectively. The estimated figure indicates 11.7% and 8.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 7.3%. It currently holds a VGM Score of A.
Price and Consensus: IBP