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Beacon Roofing Down 46% in a Year: What's Hurting the Stock?

Zacks Equity Research

Are you still holding shares of Beacon Roofing Supply, Inc. BECN and waiting for a miracle to take the stock higher in the near term? If yes, then you might lose more money as chances are bleak that the stock, which lost its value by 46.1% in a year’s time, will take a U-turn anytime soon. In the same time frame, the industry has declined 12%. Let’s delve deeper and try to find out what is hurting this Zacks Rank #5 (Strong Sell) company.

Lower-Than-Expected Earnings

Beacon Roofing’s earnings fell short of the Zacks Consensus Estimate in five of the trailing six quarters. In fourth-quarter fiscal 2018, the company reported adjusted earnings of $1.07 per share, which missed the Zacks Consensus Estimate of $1.36 by 21.3%.

Let’s look at Beacon Roofing’s earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. Over the past 30 days, the company’s earnings estimates for the first quarter and fiscal 2019 have declined by 27.3% and 19.8% to 56 cents and $3.08, respectively. Meanwhile, its earnings estimates for fiscal 2020 have moved down to 23.7% to $3.47 over the same time frame.

 

Higher Raw Material Costs: A Concern

Beacon Roofing will continue witnessing raw material price inflation. Notably, raw material prices are increasing across a wide range of key items, including asphalt, steel and gypsum as well as for inbound flatbed rates and outbound costs, including diesel and other delivery expenses. As a distributor of residential roofing supplies, the company is sensitive to asphalt prices, which are highly volatile and often linked to oil prices. This is because oil is a significant input in asphalt production. Also, shingle prices have been volatile in recent years, partly due to volatility in asphalt prices. Going ahead, increased prices might impact demand for these products, resulting in lower sales volumes. During the fiscal fourth quarter, cost of goods sold grew 49.3% year over year.

Stiff Competition

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. Beacon Roofing belongs to a highly competitive industry.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector include Tecnoglass Inc. TGLS, Lumber Liquidators Holdings, Inc. LL and Darden Restaurants, Inc. DRI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tecnoglass, Lumber Liquidators Holdings and Darden’s EPS growth rate for the current year is expected to be 134.4%, 141.4% and 18.3%, respectively.

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