On Wednesday, Stifel analysts reinstated coverage of Builders FirstSource (NYSE:BLDR) stock, a leading supplier of building materials, with a Buy rating and a price target set at $175.00.
The analysts highlighted the attractiveness of the company's current valuation, with InvestingPro data showing a P/E ratio of 14x and EV/EBITDA of 8.7x. The stock is trading in the lower quartile compared to its peers in the specialty distribution and home improvement retail sectors.
This valuation, according to Stifel, excessively reflects the risks associated with commodity exposure and economic cyclicality, including concerns about potential mortgage rate changes toward the end of 2024. According to InvestingPro, the stock's RSI suggests it's currently in oversold territory, potentially presenting an attractive entry point for investors.
Builders FirstSource is recognized for its ability to profitably capitalize on the residential construction market, demonstrated by its robust gross profit margin of 33.6% and strong return on equity of 27%. Stifel anticipates the company could achieve high single-digit core organic revenue growth in a more stable market environment. Additionally, the company is expected to continue leveraging mergers and acquisitions to solidify its unmatched leadership position within the industry.
Despite the volatility in lumber prices, Builders FirstSource has successfully expanded its market share while remaining largely in sync with the residential construction cycle. Stifel points out that the company has effectively improved its underlying margin throughout the cycle.
For the fiscal year 2024, the estimated base business EBITDA margin is projected to be 630 basis points higher than the pro-forma figures from 2019. This increase would place Builders FirstSource's EBITDA margin above that of its peers, bolstered by growth in value-added products, synergy realization, and productivity enhancements. Moreover, the company's EBITDA is expected to be fully normalized, accounting for extraordinary benefits from commodity markets.
InvestingPro analysis reveals the company maintains a "GOOD" overall financial health score, with particularly strong marks in profitability metrics. Subscribers can access 10 additional exclusive ProTips and comprehensive financial analysis in the Pro Research Report.
In other recent news, Builders FirstSource has announced the signing of an agreement to acquire Alpine Lumber Company, a move that expands its presence in the Colorado and New Mexico markets. The acquisition, which is expected to enhance Builders FirstSource's adjusted earnings per share in 2025, aligns with the company's strategic goal to invest in high-growth areas.
In other developments, Stephens has maintained an Overweight rating for Builders FirstSource, raising the price target for the company's shares to $200. This adjustment reflects confidence in the company's ability to navigate the market and anticipation of a housing recovery.
Further, Builders FirstSource reported a 6.7% year-on-year decline in net sales, totaling $4.2 billion in Q3 2024. Despite this, the company maintained robust gross margins of nearly 33% and stable adjusted EBITDA margins over 14 quarters. The company also completed six acquisitions, contributing $190 million in annual sales, and announced leadership changes with Peter Jackson stepping in as CEO and Pete Beckmann as CFO.
Lastly, the company's digital tool orders reached nearly $600 million since launch, with 2024 incremental sales expectations revised down to $110 million. Builders FirstSource also reported repurchasing $160 million in shares with $5.5 billion to $8.5 billion allocated for capital investments from 2024 to 2026.
The company's outlook anticipates modest impacts from recent hurricanes, estimating a $40 million reduction in sales. For 2024, net sales are expected to be between $16.25 billion and $16.55 billion, with adjusted EBITDA projected at $2.25 billion to $2.35 billion.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.