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Builders FirstSource, Inc. (BLDR - Free Report) touched a new 52-week high of $92.69 on Apr 11. The stock pulled back to end the trading session at $92.37, up 4.2% from the previous day’s closing price of $88.62.
BLDR has gained 48.7% in the past year against the Zacks Building Products - Retail industry’s decline of 2.7%, the Zacks Retail-Wholesale sector’s fall of 15.8% and S&P 500 Index’s decline of 8.3%.
Amid high raw material costs, supply-related constraints and tough competition, BLDR has been benefiting from its focus on cost synergies, strategic acquisitions and demand arising from repair and remodeling activities. Its focus on strategic investments in digital initiatives and innovations also bodes well. Earnings estimates for 2023 have moved north to $6.99 per share from $6.79 over the past 60 days, depicting analysts’ optimism over the stock’s growth potential.
Also, this Zacks Rank #3 (Hold) company’s share price touched a 52-week high most likely on the optimism among investors surrounding March 2023 inflation and jobs data. A few market pundits are anticipating a decline in inflation for March 2023. Meanwhile, according to the data from the Bureau of Labor Statistics released on Apr 7, the U.S. economy added 236,000 jobs in March and the unemployment rate fell to 3.5%.
Robust Buyouts: Acquisitions are an important part of Builders FirstSource’s strategy to supplement its organic growth and expand extensively across vast geographic boundaries. The company’s first selective targets include 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. In 2022, the company completed six acquisitions, contributing 7.3% of net sales. BLDR intends to enter some of the homebuilding markets where it does not currently operate.
Also, the company is strategically divesting its businesses to focus on its long-term plans of pursuing growth initiatives in its core value-added business operations. The divestment is likely to help release capital and enable the company to invest more in its primary businesses.
Cost Efficiency: Builders FirstSource is focused 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.
In 2022, BLDR delivered $123 million in productivity savings, exceeding its $100 million target. The upside was backed by improvement across a variety of projects and leveraged its BFS One Team Operating System. In the long term, the company expects 3-5% of annual productivity improvement as it has been working hard to leverage best practices and technology, enabling it to become more efficient and productive in serving customers. Given the productivity gains, BLDR expects its base business to deliver an 8-12% CAGR on the top line, an 18-22% adjusted EBITDA CAGR and a 120-160 basis points (bps) per year improvement in adjusted EBITDA margin for a total of 200 bps of improvement by 2025.
Digital Initiatives: Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for its customers. The company has been deploying Paradigm Estimate and rolling it out across its operations to provide faster and more accurate customer quotes. In 2022, BLDR completed more than 9,500 automated take-off estimates on customer plans (up from 4,000 estimates in 2021) across nine states and that adoption will continue to accelerate. The company launched the Minimum Viable Product of its builder portal – myBLDR.com — that accelerates the ability to sell digital services to more customers.
BLDR is increasing its investment to support technology and automation that will deliver operational excellence and an 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.
Strong Financials: In 2022, Builders FirstSource generated net sales of $22.7 billion, up 14.2% from the previous year. Of this growth, acquisitions contributed 1.1%, core organic sales supported 6.6% and commodity inflation added 1.1%. Also, adjusted earnings increased to $18.71 per share in 2022 from $10.32 reported in 2021. The 45.7% improvement was backed by net sales growth, a higher mix of sales from value-added product categories and disciplined pricing. Adjusted EBITDA margin rose 390 bps from the prior-year period to 19.3%.
Key Picks
Here are some top-ranked stocks that investors may consider from the same sector.
Tecnoglass Inc. (TGLS - Free Report) sports a Zacks Rank #1 at present. TGLS delivered a trailing four-quarter earnings surprise of 21.5%, on average. Shares of the company have gained 99.4% in the past six months.
The Zacks Consensus Estimate for TGLS’s 2023 sales and EPS suggests growth of 13.4% and 15.4%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently has a Zacks Rank #1. CHUY delivered a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have risen 45.2% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
The Kroger Co. (KR - Free Report) currently sports a Zacks Rank #1. KR delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has gained 3% in the past six months.
The Zacks Consensus Estimate for KR’s fiscal 2024 sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago period’s reported levels.
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Builders FirstSource (BLDR) Hits 52-Week High: What's Aiding It?
Builders FirstSource, Inc. (BLDR - Free Report) touched a new 52-week high of $92.69 on Apr 11. The stock pulled back to end the trading session at $92.37, up 4.2% from the previous day’s closing price of $88.62.
BLDR has gained 48.7% in the past year against the Zacks Building Products - Retail industry’s decline of 2.7%, the Zacks Retail-Wholesale sector’s fall of 15.8% and S&P 500 Index’s decline of 8.3%.
Amid high raw material costs, supply-related constraints and tough competition, BLDR has been benefiting from its focus on cost synergies, strategic acquisitions and demand arising from repair and remodeling activities. Its focus on strategic investments in digital initiatives and innovations also bodes well. Earnings estimates for 2023 have moved north to $6.99 per share from $6.79 over the past 60 days, depicting analysts’ optimism over the stock’s growth potential.
Also, this Zacks Rank #3 (Hold) company’s share price touched a 52-week high most likely on the optimism among investors surrounding March 2023 inflation and jobs data. A few market pundits are anticipating a decline in inflation for March 2023. Meanwhile, according to the data from the Bureau of Labor Statistics released on Apr 7, the U.S. economy added 236,000 jobs in March and the unemployment rate fell to 3.5%.
Image Source: Zacks Investment Research
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Drivers
Robust Buyouts: Acquisitions are an important part of Builders FirstSource’s strategy to supplement its organic growth and expand extensively across vast geographic boundaries. The company’s first selective targets include 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. In 2022, the company completed six acquisitions, contributing 7.3% of net sales. BLDR intends to enter some of the homebuilding markets where it does not currently operate.
Also, the company is strategically divesting its businesses to focus on its long-term plans of pursuing growth initiatives in its core value-added business operations. The divestment is likely to help release capital and enable the company to invest more in its primary businesses.
Cost Efficiency: Builders FirstSource is focused 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.
In 2022, BLDR delivered $123 million in productivity savings, exceeding its $100 million target. The upside was backed by improvement across a variety of projects and leveraged its BFS One Team Operating System. In the long term, the company expects 3-5% of annual productivity improvement as it has been working hard to leverage best practices and technology, enabling it to become more efficient and productive in serving customers. Given the productivity gains, BLDR expects its base business to deliver an 8-12% CAGR on the top line, an 18-22% adjusted EBITDA CAGR and a 120-160 basis points (bps) per year improvement in adjusted EBITDA margin for a total of 200 bps of improvement by 2025.
Digital Initiatives: Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for its customers. The company has been deploying Paradigm Estimate and rolling it out across its operations to provide faster and more accurate customer quotes. In 2022, BLDR completed more than 9,500 automated take-off estimates on customer plans (up from 4,000 estimates in 2021) across nine states and that adoption will continue to accelerate. The company launched the Minimum Viable Product of its builder portal – myBLDR.com — that accelerates the ability to sell digital services to more customers.
BLDR is increasing its investment to support technology and automation that will deliver operational excellence and an 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.
Strong Financials: In 2022, Builders FirstSource generated net sales of $22.7 billion, up 14.2% from the previous year. Of this growth, acquisitions contributed 1.1%, core organic sales supported 6.6% and commodity inflation added 1.1%. Also, adjusted earnings increased to $18.71 per share in 2022 from $10.32 reported in 2021. The 45.7% improvement was backed by net sales growth, a higher mix of sales from value-added product categories and disciplined pricing. Adjusted EBITDA margin rose 390 bps from the prior-year period to 19.3%.
Key Picks
Here are some top-ranked stocks that investors may consider from the same sector.
Tecnoglass Inc. (TGLS - Free Report) sports a Zacks Rank #1 at present. TGLS delivered a trailing four-quarter earnings surprise of 21.5%, on average. Shares of the company have gained 99.4% in the past six months.
The Zacks Consensus Estimate for TGLS’s 2023 sales and EPS suggests growth of 13.4% and 15.4%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) currently has a Zacks Rank #1. CHUY delivered a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have risen 45.2% in the past six months.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the year-ago period’s reported levels.
The Kroger Co. (KR - Free Report) currently sports a Zacks Rank #1. KR delivered a trailing four-quarter earnings surprise of 9.8%, on average. The stock has gained 3% in the past six months.
The Zacks Consensus Estimate for KR’s fiscal 2024 sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago period’s reported levels.