Installed Building Products, Inc. (IBP - Free Report) has been rallying high, courtesy of favorable pricing trends, stable end-market demand, and benefits from geographic and product diversification strategies. Shares of this residential insulation installer have rallied 73.6% in the past year, outperforming the Zacks Building Products - Miscellaneous industry’s 36.5% growth.
This bull run is likely to continue, courtesy of impressive prospects, solid acquisition strategy and strong housing market fundamentals.
Earnings estimates for 2020 have moved 7.2% north in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let us delve deeper into other factors that make this stock a profitable pick.
What Makes the Stock an Attractive Pick?
Improved Housing Market Fundamentals Bode Well: Improved U.S. housing market fundamentals on the back of lower mortgage rates, Fed’s dovish stance, solid economic growth and favorable demographics are expected to provide a major boost to demand for Installed Building Products’ products in the upcoming quarters.
Notably, net revenues of the company increased 13.6% year over year in third-quarter 2019, as a result of stable demand in single-family markets, and double-digit growth in multi-family and commercial end-markets. Meanwhile, on a same-branch basis, net revenues improved 9.3% from the prior-year quarter. Residential same-branch sales growth was 6% in the quarter, given higher price realization, and favorable customer and product mix. In the third quarter, same-branch single-family sales grew 4.9%, growth in U.S. single-family housing completions was 3.8%, while its large commercial construction end market recorded organic growth of 19.4%.
Inorganic Moves Enable Diversification: Acquisitions are an important part of Installed Building Products’ growth strategy. This led to diversification of its geographies, end markets and products. During the nine months ended Sep 30, 2019, it completed four business combinations. Moreover, four minor tuck-in acquisitions were merged into existing operations during the said period. Two notable acquisitions were 1st State Insulation, LLC in March 2019, and Expert Insulation, Inc. and Expert Insulation of Brainerd, Inc. (collectively called “Expert Insulation”) in June 2019.
The company maintains a robust pipeline of acquisition candidates that takes into account geographic expansion in core residential insulation end market, and acquisition opportunities that help in the continuation of end-market and end-product diversification strategy.
Solid VGM Score: Installed Building Products has a solid VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 (Buy) make solid investment choices.
Moreover, the company has solid prospects, as is evident from the Zacks Consensus Estimate for 2020 earnings of $3.70 per share, which indicates 14.5% year-over-year growth. Installed Building Products — which shares space with TopBuild (BLD - Free Report) , Arcosa, Inc. (ACA - Free Report) and Armstrong World Industries, Inc. (AWI - Free Report) in the industry — is a great pick in terms of value investment, supported by a Growth Score of A.
Higher Return on Equity (ROE): Installed Building Products’ trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 45.9%, much higher than the industry’s 12.4%, reflecting the company’s efficient usage of its shareholders’ funds.
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