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Beacon Roofing to Gain on Repair Activity After Harvey, Irma

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Beacon Roofing Supply Inc. (BECN - Free Report) is one of the few companies that are expected to benefit from the rebuilding activity triggered by back-to-back hurricanes Harvey and Irma. These storms have ravaged the United States, wreaking havoc across Texas and Florida, causing widespread damage to life and property.

Texas was severely impacted by Harvey, which dumped more than 50 inches of rain creating a record high for rains from a single tropical storm. Texas Governor, Greg Abbott, estimated the damage at $150-$180 billion, eclipsing the previous Hurricanes, Katrina or Sandy. The damage from Harvey was mostly due to flooding while Irma that hit Florida caused most damage due to its high winds. The numbers for the damage from Irma are still coming in and are estimated in the range of $50-$100 billion. According to projections from investment banks, both these catastrophes have the ability to knock off between 0.6% and 0.8% from the U.S. GDP growth this quarter.

Rebuilding to Benefit Companies Across Various Industries

It is likely take months to resume normalcy. As roads, buildings, and homes undergo repairs in the coming months, the rebuilding activity will benefit companies across various industries — those dealing in homebuilding materials, to building roads and roofing activity. Stocks like The Home Depot, Inc. (HD - Free Report) and Lowe's Companies, Inc. (LOW - Free Report) that sell home construction materials and other must-haves required to rebuild after storm damage, stand to gain. Texas-based Sterling Construction Company, Inc. (STRL - Free Report) builds, repairs, and reconstructs transportation infrastructure projects, including highways, roads, bridges, airfields, ports, and light rail will also play an important part in the recovery process. Roofing distributor Beacon Roofing Supply and roofing producer Owens Corning are among the other companies that are likely to benefit from the home repair activity.

How Beacon Roofing Stands to Gain

Beacon Roofing is the largest publicly traded distributor of roofing and complementary building products in North America. It also distributes complementary building products, including siding, windows, specialty exterior building products, insulation, and waterproofing systems for residential and non-residential building exteriors. As it is, 75-80% of Beacon Roofing’s revenues is related to re-roofing activity.

As of Oct 31, 2016, the company operated 369 branches, a few with multiple leased facilities or combined facilities, as well as 10 other facilities. Among these, 17 branches were in Florida and 36 in Texas. The company has consolidated presence in both Florida and Texas driven by expansion  through acquisition strategy as well as branch openings.

In October 2015, the company acquired Dallas, TX-based Roofing Supply Group, a roofing products distributor. RSG distributes roofing supplies and related materials from 83 locations across 24 states, including the key Western and Southern markets of California, Florida and Texas. In December 2015, the company made another acquisition, of Roofing and Insulation Supply, a distributor primarily of residential and commercial insulation along with roofing and related products with 20 branches spanning 13 states operating across New England, the Mid-Atlantic, the Southeast, the Upper Midwest, Texas and Colorado.

The company’s recent announcement in August that it has struck a deal to acquire Allied Building Products Corp. for $2.625 billion, comes at an opportune time. The acquisition is expected to close on Jan 2, 2018, pending customary regulatory procedures. The buyout will catapult Beacon Roofing as one of the largest public wholesale building materials distributors in North America. It will have 593 branches in six provinces across Canada and in all 50 states, expanding foothold in key markets including Texas, Florida, Colorado and California.

Allied Building Products is a leading distributor of roofing, siding, wallboard, ceiling systems and other building products. The company’s 70% of sales is generated from repair and remodel business. With projected revenues of roughly $7 billion from the combined company, it will be an increase of 69% in the company's annual revenues from current levels. It will also be about 50-60 cents incremental to earnings per share in the first year. The combined company is anticipated to realize $110 million in run-rate synergies within two years of the closure of the deal.

Further, the increased geographical presence as a result of the acquisition will enable Beacon Roofing to capitalize on the rebuilding activity stemming from the damage caused from Harvey. It also puts the company in a position to benefit from any inclement weather experienced across either coastline in the future as well. With the rising concerns of global warming leading to further storms, this is likely to be a regular occurrence.

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