Builders’ First Resource (BLDR) is an integrated solutions provider for the homebuilding industry. The company engages in the manufacturing, supply, delivery, and installation of building products and components while providing, at the same time, many value-adding services to industry professionals.
Apart from claiming the national leader status in the industry, BLDR prides itself in being an innovative one-stop-shop solution for home construction. The recent acceleration in growth, coupled with impressive stock performance, has put the stock on many investors’ and analysts’ radars. I am neutral on BLDR stock. (See Analysts’ Top Stocks on TipRanks)
An Impressive Growth Story
With macroeconomic factors having a huge influence on Builders’ First Resource business, as discussed in the next segment, the company has recorded impressive growth in the past year. In the last 12 months, revenue grew by 128%.
Net income also expanded dramatically, with diluted EPS increasing 317% over the last 12 months. BLDR has also increased its assets by 159% from December 31, 2020, to the most recent quarter.
As detailed in the investor resource BLDR provides, revenues are evenly distributed geographically across the United States, while the company’s products primarily address the single-family housing market. A commitment to invest in digitalization is also expected to fuel long-term growth and sustainability.
Management explains that BLDR’s growth strategy revolves around capturing more market share in the growing construction market while at the same time pursuing strategic acquisitions.
Market penetration will improve as the company focuses more on the multi-family and remodeling markets, where it currently has minimal presence. Finally, other innovative services and solutions are also expected to contribute to the value-adding process.
Macroeconomic Tailwinds
Builders’ First Resource growth is propelled by a couple of major macroeconomic tailwinds in today’s market.
Shortages and raised demand have caused a significant price spike in basic materials necessary for the home building process. Reports say that most major construction materials have seen double-digit price increases, with lumber, copper, and steel leading the pack, marking increases of 56.8%, 49.0%, and 48.8%, respectively. As supply chain issues persist, many analysts see materials’ prices struggling to subside in the near term.
The second bullish factor for BLDR lies in the growing U.S. real estate market. With the company providing the necessary footing for home construction on a country-wide scale, it is obvious that revenue grows as the real estate market expands.
As millennials enter their financial prime, housing starts are reaching 10-year highs, with the low-rate environment accelerating this trend. Even as the Fed is expected to raise interest rates in 2022, still in historical terms, we will be in a relatively low-rate environment. Whenever capital remains affordable, individuals and households increase their leverage, turning to borrowing (in this case mortgages) for large asset purchases.
The question, of course, for BLDR is how these factors play out in a longer-term window. While there is a lot of confidence that rates will remain lower than historical averages through the 2020s’, materials are more likely to reprice lower as housing demand calms down and supply chain disruptions are alleviated. Investors should watch not to fall into a potential value and growth trap when that eventually happens.
Recent Stock Price Run-up
BLDR’s impressive growth record over the last couple of years has been followed by an aggressive rally in stock price. The current stock price of $83.43 represents a one-year 115.2% gain, with the largest portion of the run-up developing during the past four months.
What is more extraordinary is that the company’s stock price has risen more than 670% since the COVID-19 2020 lows. While so much price appreciation has already occurred, analysts remain bullish, as the final segment of this analysis will show. Builders’ First Resource has a $16 billion market capitalization and currently pays no dividends.
The Valuation Perspective
While growth has accelerated over the past few years, the company might appear reasonably valued at first glance. Valued at a forward P/E (non-GAAP) of less than 10x and a price/sales under 1x, BLDR trades below market averages. Before jumping to conclusions, however, it is important to note that companies in the homebuilding field trade generally at very low multiples.
When the arguably more important metric of P/CFO (cash from operations) is considered, BLDR seems fairly valued, compared to the industrial sector average (16.3x vs. 16.04x for the sector).
For a company that historically trades below sector multiples, this might imply that the stock is getting overbought. The price/book multiple of 3.05x vs. 2.9x for the industrial sector also points to a similar conclusion.
Wall Street’s Take
Turning to Wall Street, Builders’ First Resource has a Strong Buy consensus rating, based on 12 Buy ratings assigned in the past three months. The average Builders’ First Resource price target is $95.91, representing 11.90% upside potential from current price levels, with a high forecast of $125.00 and a low forecast of $76.00.
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Disclosure: At the time of publication, Alex Galanis did not have a position in any of the securities mentioned in this article.
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