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Here's Why You Should Invest in TopBuild (BLD) Stock Now
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TopBuild Corp. (BLD - Free Report) is benefiting from improved single-family installation business along with notable contributions from multi-family and commercial installation businesses. Also, the emphasis on accretive acquisitions and favorable price mix bodes well.
Despite challenging housing market conditions due to high mortgage rates, TopBuild has shown strength and stability in its performance. Shares of this installer and distributor of insulation and other building products have surged 12.7% in the past three months, outperforming the Zacks Building Products - Miscellaneous industry’s 5.1% growth.
Image Source: Zacks Investment Research
What Makes the Stock Attractive
Focus on Multifamily and Installation Business
During the first quarter, the company witnessed improved single-family installation demand and expects this healthy environment to continue in the remainder of 2024. During the quarter, TopBuild witnessed 20% year-over-year growth in its multi-family segment.
Demand for TopBuild’s insulation products and services is primarily fueled by various factors, including new constructions of single-family and multi-family homes, commercial and industrial building projects, residential remodeling and repair activities and maintenance and repair needs in the commercial and industrial sectors. There is an increasing demand for energy-efficient solutions in homes, commercial buildings and industrial facilities, further driving the need for the company’s offerings.
In the first quarter of 2024, the company’s net sales increased year over year and adjusted earnings per share grew 10.3%, accompanied by adjusted operating margin and adjusted EBITDA margin, expanding 70 basis points (bps) and 100 bps, respectively. The impressive margin expansion led to increased profitability, depicting a flexible operating model and its ability to reduce costs quickly. This was backed by its focus on productivity initiatives and expansion in its multi-family and commercial business, along with single-family construction.
Focus On Strategic Acquisitions Bode Well
The company focuses on acquisitions to enhance its growth strategy alongside its organic strategies, aiming to expand into new markets and product lines. On Jun 3, 2024, BLD acquired Texas Insulation from Energy One America, expanding its presence in Dallas, Houston and Austin. This acquisition strengthens the company's ability to offer spray foam and fiberglass insulation services to residential and light commercial customers in these key markets.
On May 3, it entered into an agreement to acquire the residential insulation business Insulation Works, Inc. Also, it will likely acquire GreenSpace Insulation under the installation segment.
On Mar 1, TopBuild acquired the residential insulation business Morris Black and the customized insulation products and accessories business Pest Control Insulation or PCI. On Feb 15, the company acquired the assets of the residential and light commercial insulation business, Brabble. This installation segment acquisition enhanced its presence in North Carolina. Going forward, acquisitions remain TopBuild’s primary focus for capital allocation and growth strategy, with a healthy pipeline of outstanding potential partners.
Strong ROE and Shareholders Move
BLD’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE stands at 25.9% compared with 14.9% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds.
The company plans to drive shareholder value through investing in new areas of production, selectively pursuing acquisitions with the right fit and return and returning cash to its shareholders through share repurchases. On May 7, 2024, its board of directors approved the authorization of share repurchase of up to $1.0 billion of its outstanding common stock. This new share repurchase program is in addition to the remaining $154.4 million at 2023 end, bringing the total availability for share repurchases to $1.15 billion.
Estimate Revision & Valuation
This Zacks Rank #2 (Buy) company’s earnings estimates for 2024 suggest a growth rate of 9.6% from the year-ago period’s levels on a 5.3% revenue improvement. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 12%. The Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $21.63 from $21.50 in the past 60 days. The positive trend signifies bullish analysts’ sentiments and robust fundamentals in the near term.
From a valuation standpoint, despite its forward 12-month price-to-earnings ratio of 19.47X, being above the industry average of 16.89X, the stock remains compelling for investors. This premium valuation is justified given the company's strategic efforts to enhance productivity and operational efficiency to enhance its financial performance.
Other Key Picks
Here are some other top-ranked stocks from the Construction sector.
Image: Bigstock
Here's Why You Should Invest in TopBuild (BLD) Stock Now
TopBuild Corp. (BLD - Free Report) is benefiting from improved single-family installation business along with notable contributions from multi-family and commercial installation businesses. Also, the emphasis on accretive acquisitions and favorable price mix bodes well.
Despite challenging housing market conditions due to high mortgage rates, TopBuild has shown strength and stability in its performance. Shares of this installer and distributor of insulation and other building products have surged 12.7% in the past three months, outperforming the Zacks Building Products - Miscellaneous industry’s 5.1% growth.
Image Source: Zacks Investment Research
What Makes the Stock Attractive
Focus on Multifamily and Installation Business
During the first quarter, the company witnessed improved single-family installation demand and expects this healthy environment to continue in the remainder of 2024. During the quarter, TopBuild witnessed 20% year-over-year growth in its multi-family segment.
Demand for TopBuild’s insulation products and services is primarily fueled by various factors, including new constructions of single-family and multi-family homes, commercial and industrial building projects, residential remodeling and repair activities and maintenance and repair needs in the commercial and industrial sectors. There is an increasing demand for energy-efficient solutions in homes, commercial buildings and industrial facilities, further driving the need for the company’s offerings.
In the first quarter of 2024, the company’s net sales increased year over year and adjusted earnings per share grew 10.3%, accompanied by adjusted operating margin and adjusted EBITDA margin, expanding 70 basis points (bps) and 100 bps, respectively. The impressive margin expansion led to increased profitability, depicting a flexible operating model and its ability to reduce costs quickly. This was backed by its focus on productivity initiatives and expansion in its multi-family and commercial business, along with single-family construction.
Focus On Strategic Acquisitions Bode Well
The company focuses on acquisitions to enhance its growth strategy alongside its organic strategies, aiming to expand into new markets and product lines. On Jun 3, 2024, BLD acquired Texas Insulation from Energy One America, expanding its presence in Dallas, Houston and Austin. This acquisition strengthens the company's ability to offer spray foam and fiberglass insulation services to residential and light commercial customers in these key markets.
On May 3, it entered into an agreement to acquire the residential insulation business Insulation Works, Inc. Also, it will likely acquire GreenSpace Insulation under the installation segment.
On Mar 1, TopBuild acquired the residential insulation business Morris Black and the customized insulation products and accessories business Pest Control Insulation or PCI. On Feb 15, the company acquired the assets of the residential and light commercial insulation business, Brabble. This installation segment acquisition enhanced its presence in North Carolina. Going forward, acquisitions remain TopBuild’s primary focus for capital allocation and growth strategy, with a healthy pipeline of outstanding potential partners.
Strong ROE and Shareholders Move
BLD’s superior return on equity (ROE) is indicative of its growth potential. The company’s ROE stands at 25.9% compared with 14.9% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds.
The company plans to drive shareholder value through investing in new areas of production, selectively pursuing acquisitions with the right fit and return and returning cash to its shareholders through share repurchases. On May 7, 2024, its board of directors approved the authorization of share repurchase of up to $1.0 billion of its outstanding common stock. This new share repurchase program is in addition to the remaining $154.4 million at 2023 end, bringing the total availability for share repurchases to $1.15 billion.
Estimate Revision & Valuation
This Zacks Rank #2 (Buy) company’s earnings estimates for 2024 suggest a growth rate of 9.6% from the year-ago period’s levels on a 5.3% revenue improvement. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 12%. The Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $21.63 from $21.50 in the past 60 days. The positive trend signifies bullish analysts’ sentiments and robust fundamentals in the near term.
From a valuation standpoint, despite its forward 12-month price-to-earnings ratio of 19.47X, being above the industry average of 16.89X, the stock remains compelling for investors. This premium valuation is justified given the company's strategic efforts to enhance productivity and operational efficiency to enhance its financial performance.
Other Key Picks
Here are some other top-ranked stocks from the Construction sector.
AAON, Inc. (AAON - Free Report) carries a Zacks Rank of #1 (Strong Buy). AAON delivered a trailing four-quarter earnings surprise of 9.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for AAON’s 2024 sales and EPS indicates a rise of 3.1% and 1.8%, respectively, from the prior-year levels.
KB Home (KBH - Free Report) holds a Zacks Rank #2. It has a trailing four-quarter average earnings surprise of 18.4%.
The Zacks Consensus Estimate for KBH’s fiscal 2024 sales and EPS indicates a rise of 6.5% and 18.2%, respectively, from the prior-year levels.
D.R. Horton, Inc. (DHI - Free Report) holds a Zacks Rank #2. It has a trailing four-quarter average earnings surprise of 15.6%.
The Zacks Consensus Estimate for DHI’s fiscal 2024 sales and EPS indicates a rise of 4.5% and 3.4%, respectively, from the prior-year levels.