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Why Builders FirstSource (BLDR) is a Must Buy Stock Now

Builders FirstSource, Inc. BLDR has been riding high, courtesy of its industry-leading platform, national network, operating model and robust demand environment, defying the ongoing supply-chain woes.

Shares of this manufacturer and supplier of building materials have gained 56.9% over the past year, outperforming the Zacks Building Products – Retail industry’s 18.3% growth. This upside was led by a solid performance.

BLDR recently delivered impressive fourth-quarter 2021 results, wherein adjusted earnings of $2.78 per share increased from $1.08 a year ago. Net sales of $4.6 billion grew 23.7% on a year-over-year basis. For 2021, adjusted earnings came in at $10.32 per share versus $2.79 in 2020. Net sales were $19.9 billion for 2021, up 55.8% from the 2020 pro-forma level. Adjusted EBITDA grew 185.5% year over year to $3.1 billion, given higher demand across single-family home growth, commodity inflation, pricing and cost leverage. Adjusted EBITDA margin expanded 700 basis points to 15.4%.

Earnings estimates for 2022 have moved 29.9% higher over the past 30 days, depicting analysts’ optimism over the company’s prospects.

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Let’s delve deeper into the factors supporting this Zacks Rank #1 (Strong Buy) company’s growth trajectory. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inorganic Drive

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 manufacturing prefabricated components such as factory-built roof and floor trusses, wall panels, stairs, and engineered wood as well as other value-added products such as vinyl windows and millwork. Secondly, Builders FirstSource intends to enter some of the homebuilding markets wherein it does not currently operate.

Since 1998, BLDR has successfully integrated approximately 50 acquisitions (as of 2021-end), including BMC and ProBuild transactions, both of which transformed the company as well as the industry.

Robust Demand Environment

Being a leading supplier and manufacturer of building materials, the company is observing higher demand arising from the solid momentum of the housing industry. With the opening of the economy, demand for housing and building material products has been improving, given the increasing trend of consumers to invest more in homes amid the pandemic. Robust demand for single-family housing and repair & remodeling activities remain tailwinds for BLDR’s products and services. Core organic sales for the fourth quarter grew 11.7% from the prior-year period.

Higher Return on Equity (ROE)

BLDR’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 39.1%, much higher than the industry’s 31.4%, reflecting the company’s efficient usage of shareholders’ funds.

Focus on Digital Solutions

Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. BLDR has been introducing innovative technologies to spur growth. Its digital strategy includes three major areas, firstly to focus on internal processes and productivity by investing in technology to drive operational efficiency as well as excellence, secondly to help streamline interactions with vendors and customers, and lastly to focus on external innovation and investments to offer value-added digital products and services that support customers' success and growth.

BLDR has been pursuing several initiatives to advance digital transformation that comprises improving the pre-construction process, creating more accurate material lists, bringing supply partners into a digital workflow and better engaging homebuyers.

Other Top-Ranked Stocks in the Retail Space

Other top-ranked stocks in the Zacks Retail-Wholesale sector include Genesco Inc. GCO, Arcos Dorados Holdings Inc. ARCO and Tapestry, Inc. TPR.

Genesco currently sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 2,739.6%, on average. GCO’s shares have increased 26.4% in the past year.

The Zacks Consensus Estimate for Genesco’s 2022 sales and earnings per share (EPS) suggests growth of 35.5% and 677.1%, respectively, from the year-ago levels.

Arcos Dorados presently carries a Zacks Rank #2 (Buy). ARCO has long-term earnings growth of 24.7%. Shares of the company have increased 48.5% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 9.2% and 148.9%, respectively, from the year-ago levels.

Tapestry carries a Zacks Rank #2 at present. The company has a trailing four-quarter earnings surprise of 28.2%, on average. TPR’s shares have declined 18.6% in the past year.

The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago levels.

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Builders FirstSource, Inc. (BLDR): Free Stock Analysis Report
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Tapestry, Inc. (TPR): Free Stock Analysis Report
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