Yahoo Finance Bear of the Day: Builders FirstSource (BLDR)
Builders FirstSource (BLDR) is an $18 billion enterprise that calls itself "the nation's largest supplier of structural building products, value-added components and services to the professional market for new residential construction and repair and remodeling."
You could think of it as the "wholesale" Home Depot (HD). For comparison's sake, Home Depot is a $350 billion market cap company doing about $155 billion in annual sales.
But in a strong housing market, BLDR beat all comps, rising out of the bear market lows of late 2022 to post stock performance of over +225% by March of this year.
And even after a stock correction of 30% since then, BLDR shares are still up nearly double that of the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB), the two major SFR (single family residential) indexes.
Was the Outperformance Justified?
The driver of that rally was an EPS trailing twelve-month (TTM) moonshot from $2 to $18 that occurred from 2020 through 2022.
During that same period, TTM revenues tripled from $7.5 billion to $23 billion.
This seems extraordinary, but I think two major forces explain it: one macro and one company-specific.
First, the macro supply/demand situation can best be described by data from Lance Lambert who goes by @NewsLambert on Twitter. Here's how he previewed his new research service in October of 2023...
We are in a historically significant chapter for housing, one that has witnessed affordability deteriorate to levels unseen in decades. That's why I just quit Fortune to launch ResiClub, a news and research outlet that'll track the U.S. housing market.
And here's the quick data picture he posted just two days ago...
May 2021: 0 of the nation's 200 largest housing markets were back to pre-pandemic inventory levels
May 2023: 7 of 200
May 2024: 32 of 200 (with 19 in Florida/Texas)
(end of Lambert data view)
So we hear about the rise in interest rates and housing prices keeping affordability out of reach for many buyers.
And we see that many of the "hotter" markets are cooling off, with rising inventory levels.
But the big picture remains one of an overall housing shortage. Still. And those sunbelt markets will continue to attract new migrating homeowners this decade.
What "BFS" Does Different
When I dove into studying this company, I knew very little about them. But when I went to their website, I started getting intrigued their Digital Tools.
As an NVIDIA (NVDA) shareholder and avid fan of how electronic and system design capabilities have transformed most engineering and manufacturing processes into what I call "CAD/CAM on steroids," I should not have been surprised to see that this key builder supplier has embraced the digital age for its hammer and saw customers.
Then, I felt really in the dark as I started seeing tabs and video links about someone called Matt Risinger, host of the BuildShow. I assumed this was another HGTV "rehab" show I never saw (as I watch very little TV).
But then I played part of an "episode" of what appears to be the BFS network with Matt and I was drawn further in. It turns out...
Matt Risinger is a nationally recognized expert in building science and high-performance construction, gaining fame as host of The Build Show on YouTube. Matt regularly works with Builders FirstSource (aka "BFS") on all sorts of projects, including building houses with their READY-FRAME® system, taking advantage of BFS Digital Tools, and even appearing at their live events.
Matt started learning about construction by working summers at an inner-city ministry that fixed up row houses for elderly people. After graduating from college, the national mold crisis in 2002 inspired him to become fluent in Building Science. In 2005, Matt relocated to Austin where he founded Risinger & Company, and has since become a leader in the industry.
When I watched episode 5, I learned how fanatic Matt is about preventing mold -- and how BFS helps him design materials and construction strategies to do so. Their flatbed delivery of precisely labeled pre-cut lumber and custom materials is amazing -- and important since they admit that many home-building crews will have new, inexperienced members who benefit greatly from on-site "wood prints" for how the puzzle gets nailed together.
To see the episode #5 that I watched, use this link. Here's how they describe it...
Matt's team begins framing the house in this episode, and he showcases how BFS's READY-FRAME® system streamlines framing with pre-cut, labeled lumber packages. He also demonstrates how our myBLDR.com digital homebuilding platform uses 3D modeling to identify and solve MEP clashes before construction even begins. See how these innovations save time, reduce waste, and lead to a smoother building process!
So Why Is BLDR a Zack #5 Rank?
On May 7, BLDR delivered another "top and bottom beats" quarter, but the growth slowdown was confirmed after a meteoric ramp.
The company came out with quarterly earnings of $2.65 per share, beating the Zacks Consensus Estimate of $2.42 per share. But this comps to earnings of $2.96 per share a year ago.
This quarterly report represents an earnings surprise of only 9.50%. A quarter ago, it was expected that this construction supply company would post earnings of $2.70 per share when it actually produced earnings of $3.55, delivering a surprise of 31.48%.
It appears that the slowdown in BLDR growth, and rising home inventories, has propelled Wall Street analysts to take down EPS estimates.
Mind you, the downward revisions to growth are hardly a blip, like 1%. But both the top and bottom lines look "flatish" for this year and next.
So the real "adjustment" is about how far the stock ran into this growth as it levels off.
I would expect BLDR to continue to be a winner of the digital home-builder revolution and we should look to buy shares on dips into $120-140. The Zacks Rank will give us a heads up about the earnings turnaround.
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Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
