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Why is it Apt to Hold Installed Building (IBP) Stock Now?

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Installed Building Products, Inc. (IBP - Free Report) has been benefiting from its strategic inorganic drive across vast geographies and robust insulation business. Shares of Installed Building have gained 68% compared with the Zacks Building Products – Miscellaneous industry’s 51.9% rise over the past year.

However, the company is witnessing coronavirus-led supply chain issues, which remain a concern.

Major Growth Drivers

Accretive Acquisitions

Installed Building’s growth strategy is largely dependent on acquisitions that expand access to additional markets. The company follows a systematic strategy for portfolio diversification. So far this year, the company has completed three acquisitions representing nearly $65 million of annual revenues (as of first-quarter 2021). During the quarter, Installed Building acquired I.W. International Insulation, Inc, an insulation installation services provides based out of Washington. I.W. International has a customer base across Washington, Oregon and Idaho, and rakes in annual revenues of approximately $34.4 million.

In June 2021, the company took over General Ceiling & Partitions, Inc., boosting its insulation installation services business across the Colorado Springs market. General Ceiling is a well-established installer business that generated revenues of roughly $11.5 million during 2020.

In April 2021, Installed Building acquired Alert Insulation and Alpine Construction Services, LLC. Alert Insulation is a California-based fiberglass insulation installation and acoustical ceiling system installation service provider to trading customers and has annual revenues of nearly $21 million. This buyout will considerably expand the company’s commercial insulation installation services throughout California. Notably, Alpine is a rapidly growing installer business that generates revenues of $9.4 million annually. With the addition of Alpine, Installed Building will bolster its insulation installation services across the Colorado Springs market.

Installed Building maintains a strong pipeline of acquisition, thereby enhancing its geographic expansion in core residential insulation end market, and end-product diversification strategy.

Strong Insulation Business

The Zacks Rank #3 (Hold) company is an industry leader of insulation and complementary building products. The company has been witnessing strong demand for insulating products. This is primarily attributable to the commercial and industrial construction activities, new residential construction, remodeling and repair activities, as well as increased energy efficiency. The company continues to prioritize profitable growth through the strategy of acquiring well-developed installers of insulation and complementary building products. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Improved R&R Market Fundamentals

Declining mortgage rates have been driving the U.S. residential market in recent times, thereby aiding Installed Building. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for Installed Building and companies like Gibraltar Industries, Inc. (ROCK - Free Report) , TopBuild (BLD - Free Report) , Owens Corning (OC - Free Report) in the industry.

Superior Return on Equity (ROE)

Installed Building’s ROE is indicative of growth potential. Currently, ROE for the company is 42.8%, which is much higher than the industry’s 10.4%, reflecting Installed Building’s efficient usage of shareholders’ funds.

Zacks Investment Research
Image Source: Zacks Investment Research

Concerns

During the first quarter of 2021, the company’s gross profit was impacted significantly owing to the effect of February winter storms coupled with supply-chain disruptions. The winter storms affected manufacturing capabilities of large fiberglass insulation suppliers, disrupting Installed Building’s ability to source material and compelling it to buy from distributors and local retailers to meet customer demand.

Furthermore, as a result of the continued COVID-19 crisis, the company witnessed unusual material and supply shortages for a variety of products that are used across its installation services.