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Here's Why You Should Add TopBuild (BLD) to Your Portfolio Now

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TopBuild Corp. (BLD - Free Report) has been riding high on its Insulation Installation business and systematic inorganic strategy. The company is registering higher sales volumes, increased selling prices and improved productivity on the back of resilient U.S. housing market fundamentals.

Notably, shares of TopBuild have gained 111.4% over the past year compared with the Zacks Building Products – Miscellaneous industry’s 76.5% rally. The price performance was backed by a solid earnings surprise history. TopBuild’s earnings surpassed the Zacks Consensus Estimate in nine of the trailing 10 quarters. Moreover, earnings estimates for the second quarter and full-year 2021 have moved up 4.6% and 3.4%, respectively, in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

However, TopBuild continued to face high input cost of raw material as well as high cost of labor. Although the company has been witnessing volatility in material costs and shortage of labor, it has been regularly trying to offset rising cost of input by increasing sales volumes and sales price.

Major Growth Drivers

Robust Performance Driving Growth: Recently, the company reported first-quarter fiscal 2021 results, wherein earnings and revenues beat the Zacks Consensus Estimate by 4.7% and 0.9%, respectively. Moreover, the top and bottom line grew 47.4% and 13.7%, respectively, on a year-over-year basis. The uptrend was backed by increased sales volume as well as solid contributions from acquisitions and price.

Meanwhile, gross margin for the reported quarter expanded 40 basis points (bps) to 26.7%, adjusted EBITDA was up 31.1% and adjusted EBITDA margin expanded 210 bps from the prior-year period. Margins are being primarily driven by the company’s focus on managing multiple material costs, leveraging fixed costs and increasing operational efficiency.

The company’s Installation segment (which accounted for 71.5% of total 2020 net sales) installs insulation and other building products through the TruTeam contractor services business. During the first quarter of 2021, Installation (TruTeam) revenues increased 12% year over year to $532.8 million and adjusted operating margin for the segment expanded 120 bps to 13.9%. The robust performance is mainly attributable to volume growth and increase in selling price.

Inorganic Moves: TopBuild’s growth strategy is largely dependent on acquisitions to supplement its organic growth and expand access to additional markets and products. The company has a robust pipeline of prospective acquisitions, mainly focused on the insulation business. During first-quarter 2021, the company acquired LCR Contractors and Ozark Foam, a residential and light commercial insulation company. Also, in April 2021, TopBuild closed the acquisition of American Building Systems Group of Companies and Creative Conservation. So far during 2021, the company completed four acquisitions that are expected to generate $217 million in annual revenues.

Furthermore, the company intends to wind down some of its low-margin businesses to focus on core areas in a bid to accelerate growth and improve shareholder value.

Improved Housing Market: Declining mortgage rates have been driving the U.S. housing industry of late. Overall, the U.S. housing market has been riding high, defying headwinds like low inventory levels as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for TopBuild and companies like Masco (MAS - Free Report) , United Rentals, Inc. (URI - Free Report) and Owens Corning (OC - Free Report) in the same industry, each currently carrying a Zacks Rank #2 (Buy).

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Masco Corporation (MAS) - free report >>

Owens Corning Inc (OC) - free report >>

United Rentals, Inc. (URI) - free report >>

TopBuild Corp. (BLD) - free report >>