Shares of Headwaters Incorporated (HW) rose around 3.8% and closed at $12.79 on May 19, after the company acquired the assets of Metals USA's roofing products business (Gerard) for $28 million. The buyout will add new product lines to Headwaters portfolio.
Gerard is the second largest manufacturer of stone coated metal roofing materials in the U.S. and sells seven primary metal profiles, including classic tile, barrel vault and canyon shake.
The acquisition is in sync with Headwaters strategy of pursuing building product opportunities. The company will now have three product categories, including composite, concrete and metal, which will bring in opportunities for cross selling and building a complete roofing system.
On the other hand, the acquisition will also be beneficial for Gerard. The company will gain sales synergy associated with national sales force along with creating opportunities for roofing contractors to pull more products through distribution. It will also help in expansion of metal products sales internationally.
The transaction will be immediately accretive to Headwaters earnings. The company will fund the transaction with existing balance sheet cash. As of March 31, 2014, the company had cash balance of $154.2 million.
Headwaters expects adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) in the range of $130–$145 million for fiscal 2014. Headwaters expects strong organic revenue growth and improvement in operating margins in Light Building Products and Heavy Construction Materials segments.
In addition, a significant contribution from margins, together with a growing demand will help the company generate adequate cash. Its continuous focus on capital structure will help in increasing shareholder value.
Headwaters expects to meet its targets owing to a multi-year appreciation cycle and positive remodel trends in the housing market, which will provide significant opportunities to serve the residential real estate end markets. However, cost inflation could be a headwind, going forward
South Jordan, UT-based Headwaters is a diversified growth company providing building products as well as technologies and services to the heavy construction materials, light building products and energy technology industries.
Currently, Headwaters carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. (SSD), Aegion Corp. (AEGN) and Gibraltar Industries, Inc. (ROCK). While Simpson holds a Zacks Rank #1 (Strong Buy), Aegion and Gibraltar carry a Zacks Rank #2 (Buy).