Why to Invest in Builders FirstSource (BLDR) Amid Supply Woes
Builders FirstSource, Inc. BLDR is well positioned for growth in the near term, given its focus on innovations and digital solutions for customers, cost synergies as well as strategic acquisitions, despite continuous raw material supply woes.
Shares of this leading supplier of building materials, manufactured components and construction services have risen 24.2% in the past year, outperforming the Zacks Building Products – Retail industry’s 12.7% decline.
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The 2022 earnings estimates for this Zacks Rank #2 (Buy) company have moved 4.4% upward over the past 30 days. This positive trend signifies bullish analysts’ sentiments, 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.
The company has solid prospects, as is evident from the Zacks Consensus Estimate for 2022 earnings of $12.23 per share, which indicates 18.5% year-over-year growth. Builders FirstSource is a great pick, supported by a VGM Score of A.
Let’s delve deeper into the major driving factors.
Acquisitions
Builders FirstSource remains focused on systematic acquisitions to supplement organic growth and expand extensively across vast geographic boundaries. The company’s first selective targets are those entities which manufacture pre-fabricated components, such as factory-built roof and floor trusses, wall panels, stairs, and engineered wood. It also targets other value-added products such as vinyl windows and millwork. Secondly, the company intends to enter into some of the homebuilding markets wherein it does not currently operate. The company expects recently-completed acquisitions to add net sales growth of 5% to 6%.
On Jan 5, 2022, Builders FirstSource acquired National Lumber, the largest independent building materials supplier in New England.
In 2021, the company made seven acquisitions for $1.2 billion. Some of these were the buyouts of Apollo Software, California TrusFrame, LLC, WTS Paradigm, LLC, Alliance Lumber and John’s Lumber. In 2021, acquisitions, excluding the BMC merger, contributed to net sales growth of 5.4%.
Focus on Digital Solutions
Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. The company has been deploying Paradigm Estimate, which it continues to roll out across its operations, to provide faster and more accurate customer quotes. Till March 2022, BLDR completed 2,000 estimates on customer plans across nine states and the adoption will continue to accelerate. This process also provides a foundation for configurable visualization technology, improved design and construction efficiency for homebuilders. During first-quarter 2022, BLDR signed an agreement with Hayden Homes, a builder in the Pacific Northwest for the use of its Homebuilder Omni platform. With their plans of approximately 2,000 starts, Hayden Homes would become the largest builder, using BLDR’s digital solutions. The company’s digital strategy remains on track to capture an incremental $1 billion growth opportunity by 2026.
Focus on Productivity
Builders FirstSource expects to deliver more than $100 million in productivity savings in 2022 by continuing to leverage its BFS 1-TEAM Operating System. In the long term, the company expects 3-5% of annual productivity improvement as the company has been working hard to leverage best practices and technology, enabling it to become more efficient and productive in serving customers.
Given the productivity gains, BLDR expects its base business to deliver a 10% CAGR on the top line, a 15% adjusted EBITDA CAGR, and a 50 basis points (bps) per year improvement in adjusted EBITDA margin for a total of 200 bps of improvement by 2025. The company’s expected base business performance of 2022 is already ahead of these targets. As a result of this performance, the company expects to have $7-$10 billion of capital to deploy through 2025. This includes this year's planned capital investments in innovation and organic growth, along with M&A and share repurchases. The company continued its focus on achieving higher operating leverage on the back of higher sales and robust expense controls, by offsetting higher variable costs. Builders FirstSource is focused on cost-saving initiatives and implementing various plans for the same. Owing to this, the company is expected to provide greater resources to invest in growth, innovation and non-stop value creation for all its shareholders.
Other Key Picks in the Retail Space
Other top-ranked stocks in the Zacks Retail-Wholesale sector include Tecnoglass Inc. TGLS, Beacon Roofing Supply, Inc. BECN and BBQ Holdings, Inc. BBQ.
Tecnoglass carries a Zacks Rank #1 (Strong Buy). Shares of the company have lost 16.4% over the past year.
The Zacks Consensus Estimate for TGLS’ 2022 sales and EPS suggests growth of 21.3% and 28.7%, respectively, from the year-ago levels.
Beacon Roofing carries a Zacks Rank #1. Shares of the company have lost 4.3% over the past year.
The Zacks Consensus Estimate for BECN’s 2022 sales and EPS suggests growth of 23.5% and 36.2%, respectively, from the year-ago levels.
BBQ Holdings carries a Zacks Rank #2. BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 42.6% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago levels.
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