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TopBuild (BLD) Rides on Operational Efficiencies Amid Soft Demand
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TopBuild Corp. (BLD - Free Report) is benefiting from operational efficiencies, fixed cost leverage and successful inflation mitigation initiatives. Also, high contributions from both its operational segments and strategic acquisitions bode well.
Shares of BLD have increased 5.4% in the past three months against the Zacks Building Products - Miscellaneous industry’s decline of 5.1%. Earnings estimates for 2023 have moved north to $15.71 per share from $15.62 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
However, this installer and distributor of insulation and other building products is facing headwinds in the form of a slowdown in the U.S. housing market, high material and labor costs along with seasonal volatility.
What’s Working in Favor of BLD?
Recently, BLD reported first-quarter 2023 results, wherein its earnings and sales surpassed the Zacks Consensus Estimate by 24.6% and 8.2%, respectively.
Image Source: Zacks Investment Research
TopBuild has been recording solid earnings and revenue growth over the last few quarters. In first-quarter 2023, the company’s sales increased 8.2%, adjusted earnings per share grew 24.6%, the adjusted gross margin expanded 180 bps and adjusted EBITDA margin expanded 150 bps from the prior-year period. Per the segments, revenues in Installation and Specialty Distribution segments grew 13.4% and 2.7%, respectively, year over year. The upside was backed by higher sales volume and higher selling prices.
Also, operational efficiencies, fixed cost leverage and the ongoing success in managing inflation aided the company. The company remains focused on driving top-line growth and improving operational efficiencies. Meanwhile, the company remains committed to its long-term outlook.
Acquisitions are an important part of TopBuild’s growth strategy to supplement organic growth and expand access to additional markets and products. On Jan 26, 2023, BLD completed this year’s first acquisition by acquiring SRI Holdings, which is a residential insulation installation company. Also, in 2022, BLD made five acquisitions — CV Insulation, LLC; Assured Insulating, Green Energy, Billings and Southwest. These acquisitions are expected to generate $17.3 million in revenues annually. The increase in net sales of BLD in first-quarter 2023 was partially driven by the abovementioned acquisitions, which contributed 1.3% to sales growth.
Headwinds
As TopBuild’s business prospects are highly correlated with U.S. housing market condition and repair and remodeling activity, any untoward situation influencing the construction and housing sectors will impact the company's financials. The federal government’s actions related to economic stimulus, taxation and borrowing limits could affect consumer confidence and spending levels, which in turn may hurt both the economy and the housing market. The highly interest-rate-sensitive housing sector in the United States has been significantly impacted by rising mortgage rates as the Fed made an aggressive move to bring down the high inflation by lifting borrowing costs. It expects sales between $4.7 billion and $4.9 billion in 2023. The estimated figure indicates a decrease from the $5 billion reported in the prior-year
Higher raw material costs and labor costs remain concerns for TopBuild. The cost of fiberglass has increased frequently in recent times. Given the possible growth restrictors, BLD expects adjusted EBITDA of $820-$910 million for 2023. This suggests a decline from $940.6 million reported in 2022.
Also, BLD has been historically subjected to seasonal influences. The company typically realizes higher sales in the third and fourth calendar quarters, corresponding with the peak season for residential new construction and residential repair/remodel activity. Sales during winters are seasonally slower due to lower construction activity.
Here are some top-ranked stocks that investors may consider from the Zacks Construction sector.
Martin Marietta Materials, Inc. (MLM - Free Report) currently sports a Zacks Rank #1. MLM delivered a trailing four-quarter earnings surprise of 31%, on average. Shares of the company have gained 13.1% in the past six months.
The Zacks Consensus Estimate for MLM’s 2023 sales and EPS indicates growth of 18% and 31.2%, respectively, from the previous year’s reported levels.
Vulcan Materials Company (VMC - Free Report) currently carries a Zacks Rank #1. VMC has a trailing four-quarter earnings surprise of 7.1%, on average. Shares of the company have gained 10.5% in the past six months.
The Zacks Consensus Estimate for VMC’s 2023 sales and EPS indicates growth of 5.7% and 25.2%, respectively, from the previous year’s reported levels.
Watsco, Inc. (WSO - Free Report) currently sports a Zacks Rank #1. WSO delivered a trailing four-quarter earnings surprise of 5.3%, on average. Shares of the company have gained 22% in the past six months.
The Zacks Consensus Estimate for WSO’s 2023 sales and EPS indicates growth of 3.1% and 2.1%, respectively, from the previous year’s reported levels.
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TopBuild (BLD) Rides on Operational Efficiencies Amid Soft Demand
TopBuild Corp. (BLD - Free Report) is benefiting from operational efficiencies, fixed cost leverage and successful inflation mitigation initiatives. Also, high contributions from both its operational segments and strategic acquisitions bode well.
Shares of BLD have increased 5.4% in the past three months against the Zacks Building Products - Miscellaneous industry’s decline of 5.1%. Earnings estimates for 2023 have moved north to $15.71 per share from $15.62 per share over the past 30 days. This depicts analysts' optimism over the company’s growth prospects.
However, this installer and distributor of insulation and other building products is facing headwinds in the form of a slowdown in the U.S. housing market, high material and labor costs along with seasonal volatility.
What’s Working in Favor of BLD?
Recently, BLD reported first-quarter 2023 results, wherein its earnings and sales surpassed the Zacks Consensus Estimate by 24.6% and 8.2%, respectively.
Image Source: Zacks Investment Research
TopBuild has been recording solid earnings and revenue growth over the last few quarters. In first-quarter 2023, the company’s sales increased 8.2%, adjusted earnings per share grew 24.6%, the adjusted gross margin expanded 180 bps and adjusted EBITDA margin expanded 150 bps from the prior-year period. Per the segments, revenues in Installation and Specialty Distribution segments grew 13.4% and 2.7%, respectively, year over year. The upside was backed by higher sales volume and higher selling prices.
Also, operational efficiencies, fixed cost leverage and the ongoing success in managing inflation aided the company. The company remains focused on driving top-line growth and improving operational efficiencies. Meanwhile, the company remains committed to its long-term outlook.
Acquisitions are an important part of TopBuild’s growth strategy to supplement organic growth and expand access to additional markets and products. On Jan 26, 2023, BLD completed this year’s first acquisition by acquiring SRI Holdings, which is a residential insulation installation company. Also, in 2022, BLD made five acquisitions — CV Insulation, LLC; Assured Insulating, Green Energy, Billings and Southwest. These acquisitions are expected to generate $17.3 million in revenues annually. The increase in net sales of BLD in first-quarter 2023 was partially driven by the abovementioned acquisitions, which contributed 1.3% to sales growth.
Headwinds
As TopBuild’s business prospects are highly correlated with U.S. housing market condition and repair and remodeling activity, any untoward situation influencing the construction and housing sectors will impact the company's financials. The federal government’s actions related to economic stimulus, taxation and borrowing limits could affect consumer confidence and spending levels, which in turn may hurt both the economy and the housing market. The highly interest-rate-sensitive housing sector in the United States has been significantly impacted by rising mortgage rates as the Fed made an aggressive move to bring down the high inflation by lifting borrowing costs. It expects sales between $4.7 billion and $4.9 billion in 2023. The estimated figure indicates a decrease from the $5 billion reported in the prior-year
Higher raw material costs and labor costs remain concerns for TopBuild. The cost of fiberglass has increased frequently in recent times. Given the possible growth restrictors, BLD expects adjusted EBITDA of $820-$910 million for 2023. This suggests a decline from $940.6 million reported in 2022.
Also, BLD has been historically subjected to seasonal influences. The company typically realizes higher sales in the third and fourth calendar quarters, corresponding with the peak season for residential new construction and residential repair/remodel activity. Sales during winters are seasonally slower due to lower construction activity.
Zacks Rank & Key Picks
BLD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some top-ranked stocks that investors may consider from the Zacks Construction sector.
Martin Marietta Materials, Inc. (MLM - Free Report) currently sports a Zacks Rank #1. MLM delivered a trailing four-quarter earnings surprise of 31%, on average. Shares of the company have gained 13.1% in the past six months.
The Zacks Consensus Estimate for MLM’s 2023 sales and EPS indicates growth of 18% and 31.2%, respectively, from the previous year’s reported levels.
Vulcan Materials Company (VMC - Free Report) currently carries a Zacks Rank #1. VMC has a trailing four-quarter earnings surprise of 7.1%, on average. Shares of the company have gained 10.5% in the past six months.
The Zacks Consensus Estimate for VMC’s 2023 sales and EPS indicates growth of 5.7% and 25.2%, respectively, from the previous year’s reported levels.
Watsco, Inc. (WSO - Free Report) currently sports a Zacks Rank #1. WSO delivered a trailing four-quarter earnings surprise of 5.3%, on average. Shares of the company have gained 22% in the past six months.
The Zacks Consensus Estimate for WSO’s 2023 sales and EPS indicates growth of 3.1% and 2.1%, respectively, from the previous year’s reported levels.