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Why Builders FirstSource (BLDR) is a Must Buy Right Now

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Solid momentum in the housing market has been a silver lining for building product suppliers. The migration of consumers to larger suburban and second homes is resulting in substantial square footage growth, thereby driving accelerated home products demand.

Also, consumers are gradually shaking off worries about inflation and the rising cases of new variant Omicron. This is evident from the latest consumer confidence data. Consumer confidence improved in December, following a very modest gain in November. Importantly, as highlighted by Lynn Franco, senior director of economic indicators at the Conference Board, “expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all increased.”

Hence, among the bellwethers, Builders FirstSource Inc. (BLDR - Free Report) has been gaining from the industry tailwinds. Also, the company’s focus on strategic acquisitions and divestitures, cost synergies as well as digital solutions bodes well.

Shares of this leading supplier of building materials, manufactured components and construction services have rallied 97.1% over the past year, outperforming the Zacks Building Products – Retail industry’s 39.4% growth.
 

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Full-year 2022 earnings estimates for this Zacks Rank #1 (Strong Buy) company have moved 1.9% upward to $6.86 per share over the past seven days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

What Makes the Stock an Attractive Pick?

Inorganic Drive

Systematic acquisition is an important growth strategy for Builders FirstSource in order to supplement organic growth and expand extensively across vast geographic boundaries. The company’s first selective targets are those entities manufacturing prefabricated components such as factory-built roof and floor trusses, wall panels, stairs, and engineered wood as well as other value-added products such as vinyl windows and millwork. Secondly, the company intends to enter some of the homebuilding markets wherein it does not currently operate.

On Sep 1, 2021, the company acquired certain assets and operations of CTF Holdings Limited Partnership. Prior to the acquisition, CTF was the largest independent truss manufacturer in California, supplying framing contractors and builders in both single and multifamily markets.

On Aug 17, 2021, the company acquired certain assets and operations of WTS Paradigm, LLC (“Paradigm”), a software solutions and services provider for the building products industry. This buyout expands the company’s digital capabilities and aligns with its broader vision to provide digital solutions improving efficiency in the homebuilding process.

Focus on Digital Solutions

Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. On Sep 9, 2021, the company acquired the Apollo software assets from a construction technology startup, Katerra. The platform provides design collaboration and workflow, construction budgeting and scheduling as well as field task assignment with mobile functionality. Much optimism can be noted in this regard, as the company intends to boost long-term value through digital transformation. Also, during second-quarter 2021, the company adopted new logistics technologies, mainly delivery and dispatch management system. Its digital strategy includes three major areas — to focus on internal processes and productivity by investing in technology to drive operational efficiency as well as excellence, to help streamline interactions with vendors and customers, and to focus on external innovation and investment to offer value-added digital products and services that support customers' success and growth.

Focus on Cost Synergies

The company’s elevated scale and a very comfortable balance sheet position enable it to project an annual run-rate synergy of $140 million to $160 million by the end of 2022, indicating an overachievement in just two years compared with the original three-year commitment between $130 million and $150 million. The company continued its focus on achieving higher operating leverage on the back of higher sales and robust expense controls by offsetting higher variable costs. Builders FirstSource is focused on cost-saving initiatives and implementing various plans for the same. Owing to this, the company is expected to provide greater resources to invest in growth, innovation and non-stop value creation for all its shareholders.

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The Zacks Consensus Estimate for GMS’ sales and earnings per share for the current financial year suggests an improvement of 36.6% and 100.6%, respectively, from the year-ago period.

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Fastenal Company (FAST - Free Report) presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 2%, on average. Shares of FAST have gained 20.3% over the past year.

The Zacks Consensus Estimate for FAST’s sales and earnings for the current financial year suggests an improvement of 8.8% and 9.6%, respectively, from the year-ago period.