Builders FirstSource Builds On Housing Trends 

Thursday, May 6, 2021 | Thomas Hughes
Builders FirstSource Builds On Housing Trends 

Builders FirstSource Hits New High But Shares May Have Peaked 

Between the strength in the housing market and strength in the remodel/upgrade market it really isn’t surprising to see Builders FirstSource (NASDAQ: BLDR) doing so well. The company is firmly positioned as a go-to source for all the necessary materials for both new and add-on construction making it a high-demand business in an actively accelerating market. The latest data on permits and starts suggests the trends will continue as well, with permits up 30% and starts up 37% YOY, and demand is still building within the market. The problem for us is that share prices just hit a new high with very shaky technicals that make us think we can get this stock at a lower price with a little bit of patience. 

Builders FirstSource Absolutely Crushes The Consensus 

Builders FirstSource blew right through the consensus with $4.2 billion in net revenue. The 134.6% YOY gain beat the consensus by 1080 basis points as well, and is the result of acquisition compounded by robust organic growth. At the core level, organic growth topped 20% for the quarter on strong demand from the housing market, rising commodity prices, and the impact of the BMC acquisition. The acquisition closed in January and worth roughly 70% in terms of quarterly growth. On an adjusted basis, assuming the companies were merged last year, growth is closer to 54% and still quite robust. 

Earnings, also on an adjusted basis, were also impressive. The company was able to leverage not only its acquisitional opportunities but lower its SG&A in relation to the net. This results in a 52.1% increase in gross profit and a 187% increase in adjusted EBITDA. On the bottom line, the $0.83 in GAAP earnings beat by $0.14 while the adjusted $1.10 beat by $0.37. 

The company gave us some favorable guidance but we think they’re being cautious. The updated outlook is calling for 25% to 33% YOY growth (adjusted) which assumes a deceleration of business that we don’t see coming. If anything, the business is going to accelerate sequentially in tandem with the summer building season and drive results well above target. This is noteworthy for earnings as well because the company is forecasting significant leverage growth and EPS in the range of up 65% to 73%. 

The analysts are bullish on the stock but none have chimed in since the earnings release. Based on the strength of the release and the outlook for 2021 earnings we are expecting the analyst to begin upgrading the stock and raising their price targets very soon. 

Builders FirstSource Is A Deep Value 

Builders FirstSource is trading at only 17X this year’s earrings and 15X next with significant growth in the forecast. This compares to 25X for Home Depot and 20X for Lowe’s and neither is growing at quite the pace although growth in both is strong. The difference may be the dividend in that BLDR doesn’t pay one while the others do but that may change. The company has a rock-solid balance sheet and ample cash-generating ability so it could pay a dividend if it wanted to. Until then, Builders FirstSource is a growth-oriented company and a deep value compared to the broad market and its peers. 

The technical outlook is bullish but there is a red flag we can’t ignore. The price action has been trending steadily higher for months and surged to a new high today with highly divergent indicators. The divergence is in both the MACD and stochastic and points to weakness in the market or at least softness, that patient investors might exploit. Add to this the potentially very bearish candle that formed with the post-release action and we think this stock could correct at least 3.0% before higher again if not 5% to 10%. In either case, we think the pullback will lead to another buying opportunity.

Builders FirstSource Builds On Housing Trends 

Featured Article: Net Margin - Understanding the Different Kinds of Profit


7 Stocks to Buy For the Gig Economy

Before the global pandemic, it was referred to as a side hustle—a way for some individuals to make a little extra money. However, as the pandemic has changed the nature of how we work, and as consumers how we spend, the gig economy has become an essential way of life for many workers.

There is much that’s not known about the long-term effects of the pandemic. But if there’s one lesson we learn from history, it’s that there will be ripple effects. We believe that society will get back to something resembling normal. However, what that normal looks like may be different.

Americans were becoming less social since before the pandemic. Now consumers have begun to realize there truly is no reason to leave their house to shop for anything. And while many crave physical connection during these times, there will be many that have changed their purchasing habits for good.

Other elements of the gig economy, such as ride-hailing and home rentals, were devastated due to the pandemic. Those businesses are likely to come back.

And that’s why companies that have created the gig economy aren’t going away anytime soon. In this special report, we’ll highlight several stocks that investors should consider as the gig economy moves forward.

View the "7 Stocks to Buy For the Gig Economy".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Builders FirstSource (BLDR)1.8$43.36+1.8%N/A12.72Buy$54.50
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.