Installed Building Products, Inc. IBP is poised to gain from a strong home improvement industry backdrop and solid housing fundamentals. Also, favorable pricing strategies, stable end-market demand, benefits from geographic and product diversification strategies, as well as solid acquisitions bode well. Shares of this residential insulation installer have rallied 114.9% over the past six months, outperforming the Zacks Building Products - Miscellaneous industry’s 68.9% surge.
Earnings estimates for 2020 and 2021 have moved 7.8% and 7.9% north in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong 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 stocks here.
Let us delve deeper into other factors that make this stock a profitable pick.
What Makes the Stock an Attractive Pick?
Improved Housing & R&R Market Fundamentals: Declining mortgage rates have been driving the U.S. housing industry in recent times. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions, and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for Installed Building Products and companies like Masco MAS, TopBuild BLD, Patrick Industries Inc. PATK and others from the same industry. While Masco carries a Zacks Rank #2 (Buy), TopBuild and Patrick Industries sport a Zacks Rank #1.
Furthermore, work-from-home and stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on home improvement projects. So, the industry stands to benefit from strong gains from repair and remodeling activity.
Inorganic Moves: Acquisitions are an important part of Installed Building Products’ growth strategy. This led to diversification of its geographies, end markets and products. The company maintains a robust pipeline of acquisition candidates that takes into account geographic expansion in core residential insulation end market, and acquisition opportunities that help in the continuation of end-market as well as end-product diversification strategy.
During the first six months of 2020, it completed three business combinations. The largest of these acquisitions was that of Royals Commercial Services, Inc. in February. Acquisitions contributed 35.2% to total revenues in the first six months of the year and 60.8% in second-quarter 2020.
Higher Return on Equity (ROE): Installed Building Products’ trailing 12-month ROE is indicative of growth potential. ROE for the trailing 12 months is 45.7%, much higher than the industry’s 10.8%, reflecting the company’s efficient usage of shareholders’ funds.
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Masco Corporation (MAS) : Free Stock Analysis Report
Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
TopBuild Corp. (BLD) : Free Stock Analysis Report
Patrick Industries, Inc. (PATK) : Free Stock Analysis Report
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