Installed Building (IBP) Gains 61% in a Year: What's Driving It?
Installed Building Products, Inc. IBP is benefiting from solid buyouts, diversified end markets and product portfolio accompanied by its focus on capital-allocation strategy.
The company reported impressive second-quarter 2023 results, wherein its earnings and net revenues topped the Zacks Consensus Estimate by 12.5% and 3.8%, respectively. The metrics grew year over year as well. The uptrend was attributable to the increased demand for new residential (notably multi-family) and commercial construction activities along with profitable acquisitions. The residential housing construction activities have been a stable form of income for the company and given the current low supply of existing homes, this metric is boosting growth.
Shares of IBP have surged 61.2% in the past year, outperforming the Zacks Building Products - Miscellaneous industry’s 39.3% growth.
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This Zacks Rank #1 (Strong Buy) company topped the earnings estimates in 10 out of the trailing 14 quarters.
Earnings estimates for 2023 have increased to $9.72 per share from $8.68 per share, over the past 60 days, portraying an 8.6% year-over-year growth. The positive trend signifies bullish analysts’ sentiments, robust fundamentals, and the continuation of an outperformance in the near term.
Here’s What Makes the Stock a Desirable Pick
Accretive Acquisitions: Installed Building follows a strategic buyout strategy, which intends to enhance as well as expand its product portfolio and geographical reach. In the second quarter of 2023 the company acquired Insulco Insulation, LLC., a Florida-based installer of fiberglass and spray foam insulation with annual revenues of approximately $3 million, and AGT&L, Inc., a Texas-based installer of fiberglass, spray foam, and cellulose insulation with annual revenues of approximately $3 million. These buyouts contribute to the company’s strategy of diversifying its end markets and increasing market share. Furthermore, strategic acquisitions, which were completed in the past few years, contributed 2.3% growth to the company’s second quarter’s net revenues compared with the prior-year period.
Year to date, the company completed four business combinations and one tuck-in acquisition merged into an existing operation, delivering about $48 million of annual revenues. For the remaining part of 2023, it expects to complete acquisitions worth at least $100 million of annual revenues.
Diversified End-Markets & Product Offerings: The company has diversified end-markets comprising single-family, multi-family and commercial businesses, which drives its growth momentum even during an uncertain economic scenario. IBP is benefiting from the current housing market scenario of low existing home inventory levels as it is boosting the demand for new homes. This reflects in the company’s multi-family business results, which increased 38% on a same branch basis during the second quarter of 2023, majorly offsetting the softer single-family sales. Moreover, in the quarter the company also witnessed sequential and year-over-year improvements in its commercial business.
IBP also has a wide variety of product offerings including insulation products, garage doors, window blinds, rain gutters, hardware necessities and other commercial products. This diversity allows the company to reach out to multiple end markets and increase its market share among its peers. For the long term, the company is optimistic about its opportunities in the residential and commercial end markets, given the cyclical nature of the housing industry.
Capital Allocation Initiatives: IBP focuses on strategic capital allocation initiatives, which drive its profitability and growth prospects. The company allocates its capital as per the market upgradations and enhancements along with ensuring shareholder value. The effective capital mix enables it to ensure functional efficiencies and drive growth momentum even in this uncertain market.
In the second quarter of 2023, it generated $64.3 million of operating cash flow, which contributed to IBP’s financial flexibility given its asset-light business model. Furthermore, the company has a target leverage ratio of 1.3x as of the quarter.
Other Key Picks
Some other top-ranked stocks from the Construction sector are EMCOR Group, Inc. EME, TopBuild Corp. BLD and Fluor Corporation FLR.
EMCOR currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
EME delivered a trailing four-quarter earnings surprise of 17.2%, on average. Shares of the company have risen 82.8% in the past year. The Zacks Consensus Estimate for EME’s 2023 sales and earnings per share (EPS) indicates growth of 11.7% and 36.2%, respectively, from the previous year’s reported levels.
TopBuild currently sports a Zacks Rank of 1. BLD delivered a trailing four-quarter earnings surprise of 14.1%, on average. Shares of the company have risen 60.7% in the past year.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates growth of 3.3% and 8.4%, respectively, from the previous year’s reported levels.
Fluor currently sports a Zacks Rank of 1. FLR delivered a trailing four-quarter negative earnings surprise of 5.3%, on average. Shares of the company have gained 53.3% in the past year.
The Zacks Consensus Estimate for FLR’s 2023 sales and EPS indicates growth of 11.3% and 141.5%, respectively, from the previous year’s reported levels.
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