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BECN or BLDR: Which Building Products Stock Should You Invest in?

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A major boost in the U.S. residential market, repair and remodeling activities along with technology enhancement should continue to favor the Zacks Building Products - Retail industry in 2021. Also, prudent cost-management practices, digitization and business expansion moves are likely to benefit industry players like Beacon Roofing Supply, Inc. BECN, Builders FirstSource, Inc. BLDR, Fastenal Company FAST and GMS Inc. GMS.

The overall construction sector — especially residential construction — has been experiencing higher demand, courtesy of rising need for more work-at-home space and historically-low mortgage rates. Also, non-residential construction is likely to get a boost, given the approval of President Joe Biden’s much-awaited bipartisan agreement of $973-billion infrastructure plan.

Among the industry bellwethers, let’s check out whether Beacon or Builders FirstSource is a more stable company right now. Notably, both the companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into both the company’s growth and profitability measures.

What Defines the Stock?

Beacon is the largest distributor of residential and non-residential roofing materials in North America. It also distributes complementary building products like siding, windows, specialty exterior building products, insulation, and waterproofing systems for residential as well as non-residential building exteriors.

This building products retailer banks on solid productivity and technology enhancement strategy. Also, accretive acquisitions and prudent cost management support its profitability.

In contrast, Builders FirstSource is a leading supplier and manufacturer of building materials, manufactured components as well as construction services. It provides manufacturing, supply, and installation of a full range of structural and related building products directly to homebuilder customers. On Jan 1, Builders FirstSource merged with BMC Stock Holdings, Inc. to create the nation’s premier supplier of building materials and services.

Builders FirstSource primarily banks on value-added products, solid housing industry, geographic expansion through resilient buyouts and operational excellence. Moreover, it is focused on investing in innovation and enhancing digital solutions for customers.

Stock Performance

Beacon’s shares have gained 106.1% over a year, comparing unfavorably with Builders FirstSource’s 118% rally. The industry and S&P 500 have gained 33.4% and 42.2%, respectively, during the period. Although both the stocks have outperformed the industry, Builders FirstSource fares much better than Beacon in this parameter.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Prospects & Surprises

Analysts expect Beacon’s earnings to grow at a 55% rate in fiscal 2021. Comparatively, Builders FirstSource’s earnings are expected to grow 41.9% over the same time frame. Hence, Beacon’s higher growth rate implies greater potential for capital appreciation.

Meanwhile, considering a more comprehensive earnings history, both the companies beat earnings estimates in each of the trailing four quarters. Yet, Beacon’s average surprise of 580.9% is much better than Builders FirstSource’s 62.8%.

Profitability, Returns & Valuation

Return on Capital of Beacon is 5.6%, while that of Builders FirstSource and the industry is 15.3% and 34.8%, respectively. Return on Equity (ROE) in the trailing 12 months for Beacon is 16.3%, while that of Builders FirstSource is 27.5%. This signifies that Builders FirstSource’s business generates higher return than Beacon.

The trailing 12-month price-to-earnings (P/E) multiple for Beacon and Builders FirstSource is 13.26 and 10.85, respectively, while that of the industry is 20.24. Builders FirstSource is the cheaper of the two stocks on a trailing 12-month P/E basis.

Final Verdict

Builders FirstSource appears to be a comparatively better investment option than Beacon on solid price performance, profitability and stock valuation. Nonetheless, both the companies remain optimistic about growth trends in the industry, given solid demand, favorable repair/remodeling activities and strength in economic fundamentals, offsetting industry woes.

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Fastenal Company (FAST) : Free Stock Analysis Report

Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report

Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report

GMS Inc. (GMS) : Free Stock Analysis Report

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Zacks Investment Research