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Beacon Roofing Drops 12% in Six Months: How to Play the Stock?
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Beacon Roofing Supply, Inc.‘s (BECN - Free Report) shares have dropped 12.5% in the past six months against the Zacks Building Products - Retail industry’s 6.3% growth, the broader Retail-Wholesale sector’s 9.1% increase and the S&P 500’s 9.6% rise. The company faces challenges from higher operating and acquisition-related expenses. Also, softer demand in certain markets due to weather disruptions contributed to the overall performance decline.
Image Source: Zacks Investment Research
The roofing materials industry, closely tied to the housing sector, shows potential for recovery following the Federal Reserve's recent cut of 50 basis points in the policy rate to a range of 4.75%-5.00%. Meanwhile, according to Freddie Mac, the average rate on a 30-year fixed-rate mortgage has reached its lowest level in two years, averaging 6.08%. The decline might stimulate refinancing activity and create opportunities for increased demand in new residential construction, benefiting the overall industry.
Beacon Roofing’s diligent pricing execution, productivity and cost-saving initiatives, along with its emphasis on Ambition 2025 initiatives and strategic investments and acquisitions, positions the company to capitalize on growth opportunities in the roofing materials industry.
Factors to Turn Around BECN's Performance
Driving Expansion with Ambition 2025: Beacon Roofing has made significant strides through its Ambition 2025 Value Creation Framework, aimed at driving growth and enhancing customer service. Since its announcement on Feb. 24, 2022, the company expanded its geographic presence by opening 58 new greenfield locations and acquiring 66 branches through 18 acquisitions as of June 30, 2024. This expansion has already exceeded the original target of 40 locations, contributing $240.6 million from greenfields and $315.4 million from acquired branches to net sales in the first half of 2024. (read more: Beacon Stock Set to Benefit From Chicago Metal Supply Acquisition)
The progress made through the Ambition 2025 initiatives provides BECN with a competitive advantage by optimizing asset utilization and enhancing expense management. Targeted investments in areas such as sales organization enhancements, private label pricing strategies, e-commerce technologies and branch optimization further strengthen the company's commitment to achieving above-market growth and improving margins.
Enhancing Productivity and Digital Capabilities: BECN focuses on enhancing productivity and advancing digital initiatives to drive growth and customer engagement. Investments in technology and employee training support the company's efforts to expand product offerings and improve customer loyalty.
In the first six months of 2024, the company's digital sales rose 23.9% year over year. The company continues to invest in its platform and recently commenced an enhanced alliance with Eagle View, a leading provider of aerial imagery, software and analytics. This collaboration helps contractors place digital orders more efficiently, making Beacon Roofing their preferred supply partner. (read more: BECN Expands in Canadian Market With Beacon PRO+ Digital Tool)
The company is focused on driving operational excellence and expanding capacity through continuous improvement and productivity initiatives. Its focus on the bottom quintile branches (BQB) significantly contributed to the bottom line for many years. For 2024, the company anticipates adjusted EBITDA in the range of $930-$970 million versus approximately $930 million in 2023.
Positive 2024 Outlook: Despite lower projections for storm volumes, BECN remains optimistic about continued demand for residential non-discretionary repairs and re-roofing. The company believes that non-storm-related demand will remain strong in new construction and aged replacement.
Looking ahead to the second half of the year, Beacon Roofing will focus on factors within its control, such as enhancing sales execution, reducing inventory and managing costs. The full-year net sales expectation is projected to grow between 6% and 8%, including contributions from acquisitions announced year to date.
Favorable Valuation for BECN Stock: A Positive Sign for Investors
The company is currently trading at a discount relative to the industry it belongs to, as shown in the chart below.
Even the stock is also trading at a discount compared with the other industry players like Builders FirstSource, Inc. (BLDR - Free Report) , Owens Corning (OC - Free Report) and Tecnoglass Inc. (TGLS - Free Report) . BLDR, OC and TGLS are trading with forward 12-month P/E multiples of 15.56, 10.98 and 17.85, respectively.
Image Source: Zacks Investment Research
Estimate Revision of BECN Stock
The Zacks Consensus Estimate for BECN’s 2024 and 2025 earnings has trended downward over the past 30 days, which raises concerns about the company's future earnings potential.
Image Source: Zacks Investment Research
How to Play BECN Stock?
The company faces challenges, including higher operating and acquisition-related expenses and softer demand in certain markets due to weather disruptions. Despite implementing price increases to counter inflationary pressures, rising input costs pose a significant risk. The company anticipates operating expenses, as a percentage of sales, to increase year over year in third-quarter 2024.
On a positive note, Beacon Roofing remains committed to its Ambition 2025 Value Creation Framework, focused on driving growth and enhancing customer service. The company continues to emphasize operational excellence and productivity improvements, positioning it well to benefit from ongoing demand for non-discretionary repairs and re-roofing. Along with this, lower interest and mortgage rates could further support future demand. Current stakeholders are advised to maintain their position in this Zacks Rank #3 (Hold) stock, while new investors might consider waiting for more clarity on how Beacon Roofing navigates its challenges before making investment decisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Beacon Roofing Drops 12% in Six Months: How to Play the Stock?
Beacon Roofing Supply, Inc.‘s (BECN - Free Report) shares have dropped 12.5% in the past six months against the Zacks Building Products - Retail industry’s 6.3% growth, the broader Retail-Wholesale sector’s 9.1% increase and the S&P 500’s 9.6% rise. The company faces challenges from higher operating and acquisition-related expenses. Also, softer demand in certain markets due to weather disruptions contributed to the overall performance decline.
Image Source: Zacks Investment Research
The roofing materials industry, closely tied to the housing sector, shows potential for recovery following the Federal Reserve's recent cut of 50 basis points in the policy rate to a range of 4.75%-5.00%. Meanwhile, according to Freddie Mac, the average rate on a 30-year fixed-rate mortgage has reached its lowest level in two years, averaging 6.08%. The decline might stimulate refinancing activity and create opportunities for increased demand in new residential construction, benefiting the overall industry.
Beacon Roofing’s diligent pricing execution, productivity and cost-saving initiatives, along with its emphasis on Ambition 2025 initiatives and strategic investments and acquisitions, positions the company to capitalize on growth opportunities in the roofing materials industry.
Factors to Turn Around BECN's Performance
Driving Expansion with Ambition 2025: Beacon Roofing has made significant strides through its Ambition 2025 Value Creation Framework, aimed at driving growth and enhancing customer service. Since its announcement on Feb. 24, 2022, the company expanded its geographic presence by opening 58 new greenfield locations and acquiring 66 branches through 18 acquisitions as of June 30, 2024. This expansion has already exceeded the original target of 40 locations, contributing $240.6 million from greenfields and $315.4 million from acquired branches to net sales in the first half of 2024. (read more: Beacon Stock Set to Benefit From Chicago Metal Supply Acquisition)
The progress made through the Ambition 2025 initiatives provides BECN with a competitive advantage by optimizing asset utilization and enhancing expense management. Targeted investments in areas such as sales organization enhancements, private label pricing strategies, e-commerce technologies and branch optimization further strengthen the company's commitment to achieving above-market growth and improving margins.
Enhancing Productivity and Digital Capabilities: BECN focuses on enhancing productivity and advancing digital initiatives to drive growth and customer engagement. Investments in technology and employee training support the company's efforts to expand product offerings and improve customer loyalty.
In the first six months of 2024, the company's digital sales rose 23.9% year over year. The company continues to invest in its platform and recently commenced an enhanced alliance with Eagle View, a leading provider of aerial imagery, software and analytics. This collaboration helps contractors place digital orders more efficiently, making Beacon Roofing their preferred supply partner. (read more: BECN Expands in Canadian Market With Beacon PRO+ Digital Tool)
The company is focused on driving operational excellence and expanding capacity through continuous improvement and productivity initiatives. Its focus on the bottom quintile branches (BQB) significantly contributed to the bottom line for many years. For 2024, the company anticipates adjusted EBITDA in the range of $930-$970 million versus approximately $930 million in 2023.
Positive 2024 Outlook: Despite lower projections for storm volumes, BECN remains optimistic about continued demand for residential non-discretionary repairs and re-roofing. The company believes that non-storm-related demand will remain strong in new construction and aged replacement.
Looking ahead to the second half of the year, Beacon Roofing will focus on factors within its control, such as enhancing sales execution, reducing inventory and managing costs. The full-year net sales expectation is projected to grow between 6% and 8%, including contributions from acquisitions announced year to date.
Favorable Valuation for BECN Stock: A Positive Sign for Investors
The company is currently trading at a discount relative to the industry it belongs to, as shown in the chart below.
Even the stock is also trading at a discount compared with the other industry players like Builders FirstSource, Inc. (BLDR - Free Report) , Owens Corning (OC - Free Report) and Tecnoglass Inc. (TGLS - Free Report) . BLDR, OC and TGLS are trading with forward 12-month P/E multiples of 15.56, 10.98 and 17.85, respectively.
Image Source: Zacks Investment Research
Estimate Revision of BECN Stock
The Zacks Consensus Estimate for BECN’s 2024 and 2025 earnings has trended downward over the past 30 days, which raises concerns about the company's future earnings potential.
Image Source: Zacks Investment Research
How to Play BECN Stock?
The company faces challenges, including higher operating and acquisition-related expenses and softer demand in certain markets due to weather disruptions. Despite implementing price increases to counter inflationary pressures, rising input costs pose a significant risk. The company anticipates operating expenses, as a percentage of sales, to increase year over year in third-quarter 2024.
On a positive note, Beacon Roofing remains committed to its Ambition 2025 Value Creation Framework, focused on driving growth and enhancing customer service. The company continues to emphasize operational excellence and productivity improvements, positioning it well to benefit from ongoing demand for non-discretionary repairs and re-roofing. Along with this, lower interest and mortgage rates could further support future demand. Current stakeholders are advised to maintain their position in this Zacks Rank #3 (Hold) stock, while new investors might consider waiting for more clarity on how Beacon Roofing navigates its challenges before making investment decisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.