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Neutral on Beacon Roofing

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On Mar 13, we maintained our Neutral recommendation on Beacon Roofing Supply, Inc. (BECN - Free Report) , one of the three largest roofing material distributors in the United States and Canada, on the back its active acquisition pipeline, recovery in residential and non-residential construction sectors, offset by concerns regarding difficult comparisons ahead and a seasonally weak second quarter.

Why Reiterated?
Beacon Roofing’s first-quarter 2013 earnings were 37 cents per share, down 5% year over year. Revenues increased 5% to $514 million, benefiting from the positive impact of several acquisitions completed since the start of last year, offset by lower average residential roofing selling prices. 
Acquisitions are an important part of Beacon Roofing’s growth strategy. In the first quarter, Beacon acquired Ford Wholesale Co., a distributor of residential and commercial roofing and Construction Materials Supply marking its foray into the attractive North California market. Earlier, in December, the company acquired Pennsylvania-based McClure-Johnston Company. With continued improvement in core industry trends, we expect the company to aggressively pursue acquisitions in the near term.
The company continues to benefit from increased re-roofing activities. Driving the demand for re-roofing is an aging U.S. housing stock. Furthermore, weather damage, homeowners looking to upgrade their homes, and sales of existing homes are also driving demand. Furthermore, U.S. residential and non-residential construction is finally stabilizing and is on the road to a much-awaited recovery, which bodes well for the Beacon Roofing. 
On the flipside, Beacon is facing difficult comparisons as the prior-year results benefited from storm damage, particularly in residential business, which registered a 25% organic gain. The company will face similar issues in the second quarter as the residential business will be up against a 46% comparison.
Furthermore, the second quarter is typically affected adversely by winter construction cycles and cold weather patterns as the levels of activity in the new construction and re-roofing markets decrease. As many of Beacon’s expenses remain relatively fixed throughout the year, the company generally incurs a loss during the second quarter.
Other Stocks to Consider
Other stocks in the same industry with favorable Zacks rank are Lumber Liquidators Holdings, Inc. (LL - Free Report) , Louisiana-Pacific Corp. (LPX - Free Report) , which carry a Zacks Rank #1 (Strong Buy) and Plum Creek Timber Co. Inc. have a Zacks Rank #2 (Buy).

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