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TopBuild (BLD) Buys LCR, Expands in Texas and Tennessee

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TopBuild Corp. (BLD - Free Report) has acquired a fireproofing and insulation company, LCR Contractors. This addition will boost its residential and heavy commercial footprint, as well as product offerings in high-growth states of Texas and Tennessee. However, financial terms of the transaction have been still kept under wraps.

LCR, which came up with trailing 12-month revenues of $58 million (as of Sep 30 2020), has a wide range of products comprising fireproofing, spray foam, firestopping, thermal & acoustical insulation, as well as intumescent sprays. It serves the Texas markets of Dallas, Austin and Amarillo, along with the Tennessee markets of Knoxville and Nashville.

TopBuild is expected to gain from LCR’s strong relationships with general contractors and major projects.

Solid Buyout Strategy Bodes Well

Acquisitions are an integral part of TopBuild’s growth strategy. Over the past 12 months, TopBuild has completed four acquisitions, which are expected to generate $140 million of annual revenues.

During the first nine months of 2020, the company completed three acquisitions that are expected to generate $79 million in annual revenues. In October 2020, TopBuild completed the acquisition of Garland Insulating, one of the largest locally owned and operated insulation installation companies in Texas.

It completed one acquisition in 2019 and two in the first half of 2020. On Feb 24, 2020, the company announced that it has acquired Hunter Insulation, an 80-year old residential insulation company based in Long Island, NY. Also, on Feb 20, 2020, it added Cooper Glass Co, LLC — a commercial glass company serving the Memphis market — to its portfolio.

In addition to acquisitions, the company plans to close some low-margin businesses to focus on core areas in a bid to accelerate growth and improve shareholder value.

Price Performance

Shares of TopBuild have increased 72.2% in the past six months compared with the industry's 27.9% rally. The company has been recording solid earnings and revenue growth over the last few quarters. For the first nine months of 2020, although its sales increased just 1.8% due to COVID-led disruptions, adjusted earnings per share grew 27.8%, adjusted EBITDA was up 18.3% and adjusted EBITDA margin expanded 220 basis points from the prior-year period. While COVID-related woes impacted sales volume, impressive margin expansion led to increased profitability, depicting a flexible operating model and its ability to quickly reduce costs.

Meanwhile, TopBuild’s superior return on equity (ROE) is indicative of growth potential. The company’s ROE stands at 18.3% compared with 11.3% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds. This installer and distributor of insulation and other building products has been banking on strategic acquisitions, strong Insulation Installation business, along with strengthening repair and remodeling activities.

Zacks Rank

TopBuild currently carries a Zacks Rank #3 (Hold). The company shares space with Installed Building Products, Inc. (IBP - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) and Owens Corning (OC - Free Report) in the same industry, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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