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Here's Why You Should Add TopBuild (BLD) to Your Portfolio Now

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Zacks Equity Research
·3 min read
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TopBuild Corp. BLD has been reaping benefits from the robust demand for repair and remodeling activities. Also, systematic inorganic strategy and strength in the Insulation business have been adding to the positives.

Notably, shares of TopBuild have gained 29.4% over the past six months compared with the industry’s 27.5% rally. The price performance was backed by a solid earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in 13 of the trailing 14 quarters. Earnings estimates for 2021 have moved up 9.7% in the past 30 days. The positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (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 (Strong Buy) stocks here.

Major Growth Drivers

Strong Performance & ROE: TopBuild has been recording solid earnings and revenue growth over the past few quarters. Although the company’s sales increased just 3.6% in 2020; its adjusted earnings per share grew 32.6%, gross margin expanded 150 basis points (bps) to 27.5%, adjusted EBITDA was up 21.6% and adjusted EBITDA margin expanded 280 bps from the prior-year period.

Notably, TopBuild’s strong return on equity (ROE) indicates a superior growth potential. The company’s ROE stands at 19.3% compared with 11.4% for the industry it belongs to. This indicates the company’s efficiency in using shareholders’ funds.

Inorganic Drive: Acquisitions are important parts of TopBuild’s growth strategy that supplement its organic growth and expand access to additional markets and products. The company has a strong pipeline of prospective acquisitions, mainly focused on the insulation business. In January 2021, the company acquired LCR Contractors, a residential and heavy commercial insulation company serving markets in Texas and Tennessee. These four companies are expected to contribute $137 million of annual revenues.

In 2020, TopBuild completed three acquisitions that are expected to generate approximately $79 million in annual revenues. The acquisition of Hunter Insulation, Cooper Glass, and Garland Insulating will mark the company’s footprint in the high growth markets of Texas, Colorado and Tennessee.

Improved Housing Market and R&R Activities: Declining mortgage rates have been driving the U.S. residential market of late. Also, with more work-from-home and stay-at-home orders amid the pandemic, the demand for repair and remodeling activities has increased many folds over the past few quarters. A greater-than-expected demand for home-improvement products has been benefiting the company.

The demand has been a boon for TopBuild and companies like Masco MAS, Owens Corning OC and Waste Management, Inc. WM in the same industry. While Masco and Owens Corning carry a Zacks Rank #2 at present, Waste Management sports a Zacks Rank #1.

Returns to Shareholder: TopBuild significantly rewards shareholders on a timely basis. The company plans to drive shareholder value through dividends as well as returning cash to its shareholders through share repurchases. Notably, in 2020, the company repurchased 616,227 shares at an average price of $79.8 per share.

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Masco Corporation (MAS) : Free Stock Analysis Report

Owens Corning Inc (OC) : Free Stock Analysis Report

TopBuild Corp. (BLD) : Free Stock Analysis Report

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