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Will Builders FirstSource (BLDR) Beat Inflation in 2023?
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Builders FirstSource, Inc.’s (BLDR - Free Report) shares gained 23.7% in the past six months. It is likely to gain further on the back of its focus on innovations and digital solutions for customers, cost synergies and strategic acquisitions. BLDR is also likely to benefit from its industry-leading platform, national network, operating model and repair & remodeling activities.
The uptrend was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing 17 quarters. The company currently has a VGM Score of A, supported by both a Value and a Growth Score of A.
Image Source: Zacks Investment Research
However, the company has been ailing from high inflation, raw materials and labor shortages, transportation expenses and supply-related challenges. The industry is directly linked to the housing market and is currently facing slow demand as homebuilders are experiencing soft demand.
Earnings estimates for 2023 have moved down to $6.93 per share from $7.48 over the past seven days, depicting analysts’ concern over BLDR’s prospects. This also reflects a 61.4% year-over-year decline on 28.4% lower revenues.
Buyout Synergies: Builders FirstSource remains focused on systematic acquisitions to supplement organic growth and expand 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, engineered wood and other value-added products such as vinyl windows and millwork. Secondly, Builders FirstSource intends to enter some of the homebuilding markets where it does not currently operate.
In 2022, BLDR expects to invest approximately $500 million in accretive M&A.
Focus on Innovations & Digital Solutions: Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. The company’s digital strategy includes three major areas: firstly, focusing on internal processes and productivity by investing in technology to drive operational efficiency and excellence; helping streamline interactions with vendors and customers and focusing on external innovation and investment to offer value-added digital products and services that support customers' success and growth.
The company has been deploying Paradigm Estimate, which it continues to roll out across its operations, to provide faster and more accurate customer quotes. By September 2022, BLDR completed more than 6,600 automated take-off estimates on customer plans across nine states and that adoption will continue to accelerate. Third quarter estimates were up 27% sequentially.
This process also provides a foundation for configurable visualization technology and improved design and construction efficiency for homebuilders. 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 a 3-5% annual productivity improvement as it 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 an 8-12% CAGR on the top line, a 18-22% adjusted EBITDA CAGR, and a 120-160 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 in 2022 is already ahead of these targets.
As a result of this performance, the company expects to have $7 billion to $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.
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.
Factors Ailing Productivity
Inflation: Builders FirstSource has been witnessing inflation related to raw materials and transportation expenses. During third-quarter 2022, SG&A increased by 150 basis points year over year to 17.4%. The upside was due to additional operating expenses from locations acquired within the last 12 months, higher wages and variable compensation costs, fuel-related expenses, and strategic initiatives such as IT, productivity and digital investments.
Supply Headwinds: The company is facing supply-related challenges with respect to some of the products, including OSB, plywood, lumber and particleboard, thereby increasing the price of such products. Despite undertaking various cost-saving initiatives, the company continues to see inflationary pressures in the commodity product categories. The product mix shifted toward lower-margin commodity products.
Strong Competition: The commercial roofing market has been experiencing heightened competitive pricing pressures of late. Even though repair and remodel represent the majority of the product demand for Builders FirstSource, the timing of these replacement decisions can vary due to economic factors, weather conditions, interest rates, consumer confidence and other related factors.
Builders FirstSource belongs to a highly competitive industry. The maintenance, repair & operations (MRO) supply market is highly fragmented, with many smaller local players competing directly on price. Furthermore, it faces a substantial amount of competition from local, regional and national building material chains, mostly privately held local or regional businesses.
Stocks to Consider
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Wingstop Inc. (WING - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) .
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 17.2% in a year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.
Wingstop currently carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 11%. Shares of WING have decreased 16.1% in a year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18% and 16.2%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 2.3% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.2%, respectively, from the corresponding year-ago period’s levels.
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Will Builders FirstSource (BLDR) Beat Inflation in 2023?
Builders FirstSource, Inc.’s (BLDR - Free Report) shares gained 23.7% in the past six months. It is likely to gain further on the back of its focus on innovations and digital solutions for customers, cost synergies and strategic acquisitions. BLDR is also likely to benefit from its industry-leading platform, national network, operating model and repair & remodeling activities.
The Zacks Building Products – Retail industry increased 15.5% in the same time frame.
The uptrend was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing 17 quarters. The company currently has a VGM Score of A, supported by both a Value and a Growth Score of A.
Image Source: Zacks Investment Research
However, the company has been ailing from high inflation, raw materials and labor shortages, transportation expenses and supply-related challenges. The industry is directly linked to the housing market and is currently facing slow demand as homebuilders are experiencing soft demand.
Earnings estimates for 2023 have moved down to $6.93 per share from $7.48 over the past seven days, depicting analysts’ concern over BLDR’s prospects. This also reflects a 61.4% year-over-year decline on 28.4% lower revenues.
Let’s delve deeper into the factors supporting this Zacks Rank #3 (Hold) company’s growth trajectory. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors Driving Growth
Buyout Synergies: Builders FirstSource remains focused on systematic acquisitions to supplement organic growth and expand 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, engineered wood and other value-added products such as vinyl windows and millwork. Secondly, Builders FirstSource intends to enter some of the homebuilding markets where it does not currently operate.
In 2022, BLDR expects to invest approximately $500 million in accretive M&A.
Focus on Innovations & Digital Solutions: Builders FirstSource remains focused on investing in innovations and enhancing digital solutions for customers. The company’s digital strategy includes three major areas: firstly, focusing on internal processes and productivity by investing in technology to drive operational efficiency and excellence; helping streamline interactions with vendors and customers and focusing on external innovation and investment to offer value-added digital products and services that support customers' success and growth.
The company has been deploying Paradigm Estimate, which it continues to roll out across its operations, to provide faster and more accurate customer quotes. By September 2022, BLDR completed more than 6,600 automated take-off estimates on customer plans across nine states and that adoption will continue to accelerate. Third quarter estimates were up 27% sequentially.
This process also provides a foundation for configurable visualization technology and improved design and construction efficiency for homebuilders. 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 a 3-5% annual productivity improvement as it 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 an 8-12% CAGR on the top line, a 18-22% adjusted EBITDA CAGR, and a 120-160 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 in 2022 is already ahead of these targets.
As a result of this performance, the company expects to have $7 billion to $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.
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.
Factors Ailing Productivity
Inflation: Builders FirstSource has been witnessing inflation related to raw materials and transportation expenses. During third-quarter 2022, SG&A increased by 150 basis points year over year to 17.4%. The upside was due to additional operating expenses from locations acquired within the last 12 months, higher wages and variable compensation costs, fuel-related expenses, and strategic initiatives such as IT, productivity and digital investments.
Supply Headwinds: The company is facing supply-related challenges with respect to some of the products, including OSB, plywood, lumber and particleboard, thereby increasing the price of such products. Despite undertaking various cost-saving initiatives, the company continues to see inflationary pressures in the commodity product categories. The product mix shifted toward lower-margin commodity products.
Strong Competition: The commercial roofing market has been experiencing heightened competitive pricing pressures of late. Even though repair and remodel represent the majority of the product demand for Builders FirstSource, the timing of these replacement decisions can vary due to economic factors, weather conditions, interest rates, consumer confidence and other related factors.
Builders FirstSource belongs to a highly competitive industry. The maintenance, repair & operations (MRO) supply market is highly fragmented, with many smaller local players competing directly on price. Furthermore, it faces a substantial amount of competition from local, regional and national building material chains, mostly privately held local or regional businesses.
Stocks to Consider
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Wingstop Inc. (WING - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) .
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 17.2% in a year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.
Wingstop currently carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 11%. Shares of WING have decreased 16.1% in a year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18% and 16.2%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 2.3% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.2%, respectively, from the corresponding year-ago period’s levels.