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TopBuild (BLD) Down 2.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for TopBuild (BLD - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TopBuild due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TopBuild (BLD - Free Report) Q3 Earnings Beat Estimates

TopBuild Corp. reported better-than-expected results for third-quarter 2020. Its earnings not only surpassed the Zacks Consensus Estimate but also grew impressively from the prior-year quarter, backed by margin improvement in both the segments.

However, the company did not provide its revenue and EBITDA guidance for 2020 due to uncertainty related to the COVID-19 pandemic. Nonetheless, it remains bullish about the long-term health of the residential and commercial markets served.

In this regard, Jerry Volas, chief executive officer of TopBuild, stated, “We are pleased with our overall results that included strong adjusted operating and EBITDA margins. Looking ahead, we are bullish on the overall fundamentals of our end markets and our ability to leverage our size and scale to drive market share.”

Inside the Headlines

The company reported adjusted earnings of $2.10 per share, which surpassed the consensus estimate of $1.75 by 20% and grew 37.3% from the prior-year period.

Total net sales of $697.2 million missed the consensus mark of $703 million by 0.9%. However, the top line grew 2.2% on a year-over-year basis on the back of increased volume and sales from acquisitions.

Segmental Performance

For the third quarter, Installation (TruTeam) revenues decreased 1.2% year over year to $492.2 million. Acquisitions and selling price added 0.9% and 1.2% to revenues, respectively. Volumes fell 3.4% from the prior-year quarter. Adjusted operating margin for the quarter expanded 300 bps to 17%.

For the quarter, revenues at the Distribution (Service Partners) segment grew 10.5% year over year to $244.1 million, driven by 12.2% volume growth, partially offset by a 1.7% selling price decline. Operating margin improved 280 bps from the year-ago level to 13.4%.

Operating Highlights

Adjusted gross margin of 28.5% expanded 220 bps. Adjusted operating profit of $101.7 million also increased 26.2% year over year. Adjusted operating margin improved 280 bps from the year-ago period to 14.6%. Notably, the gross margin improvements were driven by operational efficiencies, savings from cost-reduction initiatives, material deflation and lower insurance costs. The operating margin improvement was attributed to the aforementioned factors, along with reduced travel and entertainment activity.

Adjusted EBITDA for the third quarter grew 21.6% from the year-ago quarter to $119.2 million. Adjusted EBITDA margin improved 270 bps to 17.1% for the quarter.

Financial Update

As of Sep 30, 2020, cash and cash equivalents were $315.3 million, up from $184.8 million at 2019-end. The company has $389.6 million of borrowing capacity available under the revolving facility.

For the third quarter, long-term debt came in at $688.9 million compared with $698 million at 2019-end. For the first nine months of 2020, net cash provided by operating activities was $255.7 million compared with $182.8 million in the corresponding year-ago period.

During the third quarter, it repurchased 57,810 shares for $155.63 per share. As of Sep 30, 2020, $46 million remained under the $200-million stock repurchase authorization.

Other Updates

On Oct 1, 2020, the company acquired Garland Insulating, an insulation installation company in Texas.

Meanwhile, TopBuild has announced three acquisitions year to date and expects $79 million in annual revenue additions owing to the same.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 7.27% due to these changes.

VGM Scores

At this time, TopBuild has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise TopBuild has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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