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Builders FirstSource (BLDR) Up 55% in a Year: Factors to Note

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Builders FirstSource, Inc. (BLDR - Free Report) has been rallying over the past year, thanks to solid home buying and repair & remodeling activities. Shares of this manufacturer and supplier of building materials have gained 55% over a year versus the Zacks Building Products – Retail industry’s 6% growth and the Zacks Retail-Wholesale sector's 14.5% fall. BLDR is also benefiting from its industry-leading platform, national network, operating model and robust demand environment, defying the ongoing supply-chain woes.

Impressive, the company has outpaced other industry players like Fastenal Company (FAST - Free Report) , GMS Inc. (GMS - Free Report) and Lowe's Companies, Inc. (LOW - Free Report) — each carrying a Zacks Rank #2 (Buy) — in the same time frame. The price performance was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing 14 quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings estimates for 2022 have moved 29.9% higher over the past 30 days, depicting analysts’ optimism over BLDR’s prospects.

Let’s delve deeper into the factors supporting this Zacks Rank #1 (Strong Buy) company’s growth trajectory. You can see the complete list of today’s Zacks #1 Rank stocks here.

Robust Q4 Results: Builders FirstSource recently reported impressive fourth-quarter 2021 results, wherein adjusted earnings increased 157.4% year over year to $2.78 per share. Net sales of $4.6 billion also grew 23.7% on a year-over-year basis. For 2021, adjusted earnings came in at $10.32 per share versus $2.79 in 2020. Net sales were $19.9 billion for 2021, up 55.8% from the 2020 pro-forma level. Adjusted EBITDA grew 185.5% year over year to $3.1 billion, given higher demand across single-family home growth, commodity inflation, pricing and cost leverage. Adjusted EBITDA margin expanded 700 basis points to 15.4%.

For 2022, the company expects strong demand in single-family housing and across the portfolio of value-added products and solutions.

Buyout Synergies: Builders FirstSource remains focused on systematic acquisitions 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, Builders FirstSource intends to enter some of the homebuilding markets wherein it does not currently operate.

On Jan 5, 2022, Builders FirstSource acquired National Lumber, the largest independent building materials supplier in New England. In 2021, the company announced various acquisitions, including Apollo software, California TrusFrame, LLC, WTS Paradigm, LLC, Alliance Lumber and John’s Lumber. Since 1998, BLDR has successfully integrated approximately 50 acquisitions (as of 2021-end), including BMC and ProBuild transactions, both of which transformed the company as well as the industry.

Robust Housing Demand: Being a leading supplier and manufacturer of building materials, BLDR is observing higher demand arising from the solid momentum of the housing industry. With the opening of the economy, demand for housing and building material products has been improving, given the increasing trend of consumers to invest more in homes amid the pandemic. Robust demand for single-family housing and repair & remodeling activities remain tailwinds for BLDR’s products and services.

Focus on Innovations & Digital Solutions: Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. The company’s deal to acquire WTS Paradigm is a testimony to this fact. BLDR is increasing investment to support technology and automation that will deliver operational excellence and increased volume of sales. The standardization and automation processes along with technology-based workflows will help minimize costs, streamline business operations, and enhance working capital efficiency.

The company’s digital strategy includes three major areas: firstly to focus on internal processes and productivity by investing in technology to drive operational efficiency and excellence, next to help streamline interactions with vendors and customers and lastly to focus on external innovation and investment to offer value-added digital products and services that support customers' success and growth.

Cost-Saving Moves: In 2021, the company garnered $108 million in cost savings, backed by its merger with BMC Stock Holdings on Jan 1, 2021. Elevated scale and a very comfortable balance sheet position enabled it to achieve a synergy run rate of $160 million by 2021-end, indicating an overachievement in just two years. The company continued focusing on achieving higher operating leverage on the back of increased sales and robust expense controls by offsetting higher variable costs.

Superior Return on Equity (ROE): BLDR’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 39.1%, much higher than the industry’s 31.4%, reflecting the company’s efficient usage of shareholders’ funds.

A Brief Overview of the Above-Mentioned Stocks

Fastenal’s expected earnings growth rate for 2022 is 11.9%. The Zacks Consensus Estimate for 2022 earnings has improved 0.6% over the past 60 days.

The company surpassed earnings estimates in each of the trailing four quarters, with an average of 3.3%. FAST shares have gained 16.5% in the past year.

GMS’ expected earnings growth rate for fiscal 2022 is 103.7%. The Zacks Consensus Estimate for fiscal 2022 earnings has improved 1.5% over the past 30 days.

The company surpassed earnings estimates in each of the trailing four quarters, with an average of 19.7%. GMS shares have improved 29.7% in the past year.

Lowe's expected earnings growth rate for fiscal 2022 is 11.1%. The Zacks Consensus Estimate for fiscal 2022 earnings has improved 0.4% over the past 30 days.

The company surpassed earnings estimates in each of the trailing four quarters, with an average of 12.9%. LOW shares have increased 15.6% in the past year.