On Friday, UBS began coverage on Builders FirstSource (NYSE:BLDR), a leading supplier of building materials, with a positive outlook. The firm assigned a Buy rating to the company's stock, accompanied by a price target of $232.00. This target suggests a significant potential upside from the company's current market valuation.
The UBS analyst underscored the robust growth prospects for Builders FirstSource, highlighting the company's potential for margin expansion and an anticipated adjusted earnings per share (EPS) compound annual growth rate (CAGR) of approximately 13% through 2026, which could extend to 16% by 2027. These projections notably surpass the Visible Alpha consensus, which estimates an 8% growth rate.
According to UBS, Builders FirstSource is likely to outperform market expectations, which could lead to a rise in its share price and possibly facilitate an expansion of its valuation multiple. The firm's stance is that the market is currently undervaluing the company's growth trajectory over the coming years, due to prevailing concerns about a soft multi-family market, a decline in building materials per housing start, and skepticism about the residential construction cycle.
The analyst expressed confidence that the present challenges facing Builders FirstSource are temporary and will dissipate in the following year, allowing the market to refocus on the company's opportunities for increased market share and earnings potential in the subsequent years.
The price target of $232 set by UBS is based on approximately 16 times the firm's projected adjusted EPS of $14.50 for 2026. This valuation reflects UBS's optimistic view of the company's financial performance and market position in the foreseeable future.
In other recent news, Builders FirstSource has seen significant developments. Goldman Sachs initiated a Buy rating on the company's stock, predicting a 27% compound annual growth rate in revenue and a 1% increase in adjusted earnings per share from 2014 to 2024.
Loop Capital has also increased Builders FirstSource's price target to $230, maintaining a Buy rating, while Oppenheimer adjusted its price target upwards to $225, maintaining its Outperform rating. Truist Securities upgraded the company's stock from Hold to Buy, raising the price target to $220. However, RBC Capital Markets reduced the price target to $178, maintaining an Outperform rating.
Builders FirstSource has revised its full-year 2024 outlook, expecting net sales to range between $16.4 billion and $17.2 billion, and adjusted EBITDA to be between $2.2 billion and $2.4 billion. The company also announced leadership changes, with Peter Jackson set to take over as President and CEO from Dave Rush, who is retiring.
Pete Beckmann will succeed Jackson as CFO. M. Chad Crow, former President and CEO of Builders FirstSource, has been appointed as a new independent member of D.R. Horton's Board of Directors. These are the recent developments involving Builders FirstSource.
InvestingPro Insights
Building on UBS's positive outlook for Builders FirstSource (NYSE:BLDR), recent data from InvestingPro provides additional context to the company's financial performance and market position. As of the last twelve months ending Q2 2024, BLDR reported a revenue of $17.03 billion, with a gross profit margin of 34.1%. The company's P/E ratio stands at 15.79, suggesting a relatively moderate valuation compared to its earnings.
InvestingPro Tips highlight BLDR's strong market performance, noting a high return over the last year. This aligns with UBS's bullish stance on the company's growth prospects. Additionally, BLDR is recognized as a prominent player in the Building Products industry, which supports UBS's view on its potential for market share expansion.
It's worth noting that management has been aggressively buying back shares, which could be seen as a sign of confidence in the company's future performance. This action may contribute to the earnings per share growth that UBS projects.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for BLDR, providing a deeper understanding of the company's financial health and market position.
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