Shares of Beacon Roofing Supply, Inc. BECN scaled a fresh 52-week high of $63.62 on Nov 29, eventually closing lower at $63.35. The gain is partly driven by Beacon Roofing’s solid performance in fiscal 2017 as well as its focus on growth through acquisitions.
The company has a market cap of $4.3 billion. Over the last three months, its average volume of shares traded has been roughly 823K.
Price Performance
Notably, the stock has gained 37.6% in a year’s time, higher than the S&P 500’s gain of 18.6%. Beacon Roofing has also outperformed the industry’s gain of 28.7% during the same time frame with respect to price performance.
Favorable Rank & Style Score
The company currently sports a Zacks Rank #1 (Strong Buy). Further, Beacon Roofing has an impressive VGM Score of A. In this, V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three scores. Such a score eliminates the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank 1, 2 (Buy) or 3 (Hold), offer the best investment opportunities.
What Led to the 52-week High?
Beacon Roofing’s shares have gained around 7.4% since it reported fourth-quarter and fiscal 2017 results on Nov 20. Its earnings increased around 6% year over year driven by strong sales growth within each of its three product lines — residential roofing, non-residential roofing and complementary products. It was further aided by strong organic sales trends across the majority of geographies. Net sales also climbed 9.8% year over year, beating the Zacks Consensus Estimate.
Notably, Beacon Roofing opened one Greenfield branch in the fiscal fourth quarter, bringing the total number of branch openings to four in fiscal 2017. The company acquired 23 branches during the fiscal. Beacon Roofing continues to balance year-to-year branch opening strategy with potential acquisitions. In fiscal 2017, the company closed five acquisitions, with a cumulative sales run rate of more than $130 million of annual sales with 23 added branches.
In addition to growth through acquisitions, the company also remains focused on attaining organic growth. Utilizing technology, the company continues to drive selling effectiveness through its CRM platform and has more than 1000 key employees utilizing this tool. Additionally, in fiscal 2017, the company introduced Beacon Pro+ — its innovative e-commerce portal that enables customers to order online from a catalog of over 50,000 products.
During the fiscal fourth-quarter conference call, the company initiated the guidance for fiscal 2018. Total sales for the fiscal are projected in the range of $6.6-$6.9 billion, representing an expected growth of 51-58%. Further, adjusted EPS is likely to lie between $2.95 and $3.25. Improvement in earnings in fiscal 2018 will be driven by growth in core business of 15-20 cents and 20-25 cents contribution from Allied Building Products.
Allied Building Acquisition to be a Growth Driver
In August 2017, Beacon Roofing has struck a deal to acquire CRH plc's CRH U.S distribution business, Allied Building Products Corp. for $2.625 billion in cash. The acquisition remains on track to conclude in early January of fiscal 2018. The acquisition will make Beacon Roofing one of the largest public wholesale building materials distributors in North America.
With projected revenues of roughly $7 billion from the combined company, it will be a 69% increase for Beacon Roofing's annual revenues from the current levels and add about 50-60 cents incremental to earnings per share in the first year. The combined company is anticipated to realize $110 million in run-rate synergies within two years of the closure of the deal.
Upward Estimate Revisions
Furthermore, Beacon Roofing’s positive estimate revisions reflect optimism in the company’s potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Beacon Roofing have moved up over the past 30 days, reflecting analysts’ bullish sentiments. The earnings estimate for fiscal 2018 has gone up 17.6%, while that of fiscal 2019 moved up 30.4%.
Beacon Roofing Supply, Inc. Price and Consensus
Beacon Roofing Supply, Inc. Price and Consensus | Beacon Roofing Supply, Inc. Quote
Other Stocks to Consider
Other top-ranked stocks in the same space include American Eagle Outfitters, Inc. AEO and The Home Depot, Inc. HD, both carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
American Eagle Outfitters has a long-term earnings growth rate of 8.7%. Its shares have been up 8.4% year to date.
Home Depot has a long-term earnings growth rate of 13.4%. Its shares have gained 32.2% during the same time frame.
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