Beacon Roofing Supply, Inc. (BECN - Free Report) remains well poised for growth from Allied Building Products acquisition, seasonality, as well as growing new and re-roofing demand. However, raw material price inflation and competitive pricing pressures remain concerns.
This distributor of residential and non-residential roofing materials, with a market capitalization of approximately $2.7 billion, currently carries a Zacks Rank #3 (Hold).
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Beacon Roofing
Value Growth Momentum (VGM) Score
Beacon Roofing currently has a Zacks VGM score of B. Here V stands for Value, G for Growth and M for Momentum. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of B, along with some other key metrics, makes the company a solid choice for investors.
Higher Inventory Turnover Ratio
Over the trailing 12 months, the inventory turnover ratio for Beacon Roofing has been 5.5% compared with the industry’s level of 4.6%. A higher inventory turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness.
Beacon Roofing’s trailing 12-month P/E ratio is 18.9, while the industry's average trailing 12-month P/E is at 23.3. Consequently, the stock is cheaper at this point based on this ratio.
Growth Drivers in Place
Beacon Roofing is moving forward with the ongoing integration of the Allied Building Products acquisition. The company raised its previous synergy expectations from $110 million to an updated $120-million target due to the early integration progress. It also raised the fiscal 2018 synergy expectations from around $35 million to $40 million. Regarding the specific synergy components, Beacon Roofing has begun consolidating procurement programs to secure the best supply arrangement from vendors on a market-by-market basis.
Beacon Roofing witnessed cold temperatures throughout second-quarter fiscal 2018, a rain-filled February month, and snow/wind disruptions during March. However, the harsh weather conditions created a solid demand backdrop for the remainder of fiscal 2018. Thus, the company’s third-quarter fiscal 2018 results are expected to improve as the critical weather situation witnessed in the fiscal second quarter will not repeat.
Notably, Beacon Roofing remains optimistic about a strong macroeconomic backdrop for new constructions and home improvement, and company initiatives. The company continues to have an encouraging outlook for non-residential construction and believes the impact of winter weather on northern markets will drive re-roofing activity for the remainder of the fiscal. Earlier in May, Beacon Roofing incorporated a pickup in re-roof activity across many affected areas into its forecast, and expects that the elevated demand will continue into fourth-quarter fiscal 2018, and even early into fiscal 2019.
Beacon Roofing will continue to witness raw-material price inflation. Notably, raw material price increases are occurring across a wide range of key items, including asphalt, steel and gypsum, as well as for inbound flatbed rates and for outbound costs, including diesel and other delivery expenses. Additionally, elevated prices might impact demand for these products, resulting in lower sales volumes.
In addition to the above, the commercial roofing market has been experiencing heightened competitive pricing pressures, of late. Moreover, even though repair remodel represents the majority product demand for Beacon Roofing, the timing of these replacement decisions can vary due to economic factors and weather conditions.
The company has underperformed the industry it belongs to in the past year. The stock has lost around 18%, while the industry recorded growth of 15%.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the same sector are MasTec, Inc. (MTZ - Free Report) , NCI Building Systems, Inc. (NCS - Free Report) and PGT, Inc. (PGTI - Free Report) , all sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MasTec has a long-term earnings growth rate of 14%. Its shares have rallied 16%, over the past year.
NCI Building Systems has a long-term earnings growth rate of 10%. The company’s shares have been up 14%, in the past year.
PGT, Inc. has a long-term earnings growth rate of 19.3%. The stock has appreciated 79% in a year’s time.
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