Builders FirstSource (NASDAQ: BLDR) is one of the largest national supplier and manufacturer of building materials, components and construction services to professional homebuilders, sub-contractors, remodelers, and consumers.
On Feb. 28, 2018, the company reported its results for the fourth quarter and Fiscal year ended December 31, 2017.
BLDR had a strong finish to the year, growing sales per day, excluding closed locations, by 13.2 percent in the fourth quarter. The company had an increase in sales volume in the single-family construction end market of 7.5 percent, and 5.2 percent in the repair and remodeling / other end market. Additionally, it witnessed a growth in manufactured products of 11.3 percent.
BLDR continues to deliver sales growth and strong financial results while executing on its strategic priorities and capacity expansion. The company is investing in augmenting its manufacturing capacity to drive enhanced growth in margin-accretive products and markets while making further progress in its capital structure.
In fact, In the latest quarter, BLDR further refined its capital structure by redeeming its most expensive debt, the 10.75% unsecured notes, reducing go forward interest expense by $35 million annually. As per management, cash flow generation and debt reduction will continue to be a priority for 2018, as it executes its multi-year plan to de-lever the balance sheet and fund growth initiatives.
Analysts tracking the stock believes that the fundamental need for infrastructure investment in the U.S. is higher than ever and therefore company’s like Builders FirstSource is at a critical inflection point and has significant opportunities to enhance its business risk profile in 2018 and beyond.
In fact, as housing starts level is still significantly below the long-term historical average and residential repair & remodel spending continues to show consistent growth, BLDR is well positioned to capitalize on the opportunities that its national footprint, strong customer relationships, and end market diversity provide.
Driven by abovementioned factors, several equities research analysts recently issued favorable reports on BLDR shares.
- Wedbush set a $30.00 price target and gave the stock an “outperform” rating on, January 12th.
- Stifel Nicolaus boosted target price from $23.00 to $26.50 and gave a “buy” rating on, January 22nd.
- Stephens reissued “buy” rating and issued a $27.00 target price on, January 17th.
Three equities research analysts have rated the stock with a hold rating, and ten have issued a buy rating to the company. The company has a consensus rating of “Buy” and an average price target of $24.50.
About the company: Headquartered in Dallas, Texas, Builders FirstSource is one of the largest U.S supplier of building products, prefabricated components, and value-added services to the professional market segment for new residential construction and repair and remodeling.
It provides customers an integrated homebuilding solution, offering manufacturing, supply, delivery, and installation of a full range of structural and related building products.
It operates in 40 states with 402 locations and has a market presence in 75 of the top 100 Metropolitan Statistical Areas, providing geographic diversity and balanced end market exposure.
Key achievements of 2017:
- Market risk profile: 2017 revenue growth of 10.7%. Added +120 sales professionals and trainees in 2017
- Business risk profile: 11.0% growth in manufactured products in 2017, four new component plants in 2017
- Operational risk profile: Roadmap for multi-year cost savings, Integration of delivery management system to core ERP completed in December, Customer to Cash project begun
- Financial risk profile & Liquidity: Cash flow of $119M after $62M in CapEx investments, called 10.75% notes, saving $35M go forward cash interest
Unique differentiating factors of BLDR and demand drivers:
- The highly fragmented homebuilding market provides a diverse customer base, where no one customer accounts for more than 5% of sales and top 10 accounts for ~16%
- National scale facilitates strategic partnerships with customers and suppliers
- Presence in 75 of top 100 MSAs and in 40 states
- Housing starts level is still significantly below the long-term historical average
- Residential repair & remodel spending continues to show consistent growth
Long-term guidance:
BLDR continues to invest to further leverage its advantaged product portfolio to capture growth in the coming years. It is enthusiastic about its plans to create meaningful value through the Company’s identified initiatives as well as capitalizing on a growing single-family housing market.
- Double 2016 EBITDA,
- EPS $3.00 – $3.50
- ~ 2.5 – 3.0 x 2016 Free Cash Flow
- ~ Over $1B Cumulative Cash Generation
Fourth Quarter 2017 Compared to Fourth Quarter 2016:
Revenue and Profitability:
- Net sales for the quarter ended December 31, 2017, were $1.8 billion, a sales increase of 15.0 percent over net sales for the fourth quarter of 2016. Sales per day, excluding closed locations, grew 13.2 percent in the quarter, which was benefited approximately 7.6 percent from the impact of commodity lumber price inflation on sales and 5.6 percent from sales volume growth.
- Gross margin of $431.2 million in the fourth quarter of 2017 increased by $39.6 million over the fourth quarter of 2016. Gross margin percentage was 24.2 percent, a decrease of 110 basis points from 25.3 percent in the fourth quarter of 2016. The gross margin percentage decreased primarily due to the impact of commodity price inflation relative to short-term customer pricing commitments.
Liquidity:
- On December 29, 2017, the Company redeemed all of the outstanding $367.6 million aggregate principal amounts of its 10.75% Senior Notes due 2023, which limited the future deductibility of interest expense.
- This transaction is expected to generate $35 million in annual go forward cash interest savings.
- Liquidity at December 31, 2017, was $494.3 million, which consisted of net borrowing availability under the revolving credit facility and cash on hand.
Key risk factors and potential stock drivers:
- The working capital requirement is relatively large, as is inherent in this industry. Sustained efficient working capital management as the business grows, would be a key sensitivity factor for the company.
- The financial risk profile should improve supported by better working capital management and improving cash accruals/profitability.
- Weakening of the financial risk profile due to slower than expected pace of operating performance improvement, or significant, debt-funded capital expenditure could adversely affect the sentiments.
- Vulnerability to volatility in raw material prices is likely to persist over the medium term, given the limited flexibility to pass on price increases owing to competition.
Stock Chart:
- On Thursday, March 1st, 2018, BLDR is trading at $21.67 (up 13%) on an above average volume of 1.37 million shares exchanging hands. Market capitalization is $2.45 billion. The current RSI is 57.31
- In the past 52 weeks, shares of BLDR have traded as low as $13.33 and as high as $23.28
- At $21.75, shares of BLDR are trading above its 50-day moving average (MA) at $21.31 and above its 200-day MA at $17.83.
- The present support and resistance levels for the stock are at $21.10 & $23.00 respectively.
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