Building Product Distributors still offer plenty of upside

Industrials

Thompson Research Group

Many market participants are looking for a way to play housing and it would be easy to look at building product distributors and write them off as being overvalued and that you’ve missed out. However, TRG believes this is faulty logic. Builders FirstSource, Beacon Roofing and GMS (as well as others) have margin profiles that have risen to comparable or superior levels in relation to the “premium-valued group” (SiteOne, Pool, Leslie's, Core & Main and Ferguson), but have EV/EBITDA multiples (avg. 10.6x) well below these stocks (avg. >20x). If they gain a more appropriate multiple (for strong SF starts and better margins) on higher EBITDA, then all three companies still offer significant (~70%) upside.

- 05 April, 2024

Positive results from TRG's Q3 Contractor & Surety survey

Thompson Research Group

2H22 and 2023 will be a strong period for non-res construction and maintenance spending activity - backlogs / pipelines are sizable and increasing at a solid rate (and comes before the infrastructure bill which has yet to hit the ground in a material way). In keeping with trends over the past 18 months, data centres, warehouses and healthcare are very strong. Although labour and material challenges remain, TRG expects bullish results from several stocks including WillScot Mobile Mini, Herc, Vulcan Materials and Beacon Roofing.

- 14 October, 2022

Companies with dangerous inventory levels

Two Rivers Analytics

"FISH" - First In, Still Here. Two Rivers deconstruct their Earnings Quality model to focus solely on one aspect of poor earnings quality: significant inventory slowdowns. This looks at 1) The materiality of inventory levels to the business. 2) The trend in turnover. 3) The magnitude of the slowdown. As the odds of recession rise, companies caught with excess inventory will find themselves forced to offer price concessions, leading to sales and margin declines, and to earnings disappointments. Highlighted names include Alcoa, Amazon, Arista Networks, Beacon Roofing, Beyond Meat, First Solar, LGI Homes and Walmart.

- 08 July, 2022

Owens Corning (OC) & Beacon Roofing Supply (BECN)

Materials

Residential roofing checks reveal very strong start to 2022 - 1Q22 SSS growth expectation is 20-25% (Feb was insane with most contacts suggesting SSS up 40%+; Jan & Mar both likely grew 15-25%). Contacts suggest the Jan price increase is gaining solid traction and many think the Apr increase is going to be huge. Inflation is the offset which keeps getting worse, but the industry has benefited from inflation and Northcoast thinks this can continue. Overall, they view their checks favourably for manufacturers and distributors and raise their full year estimates for OC and BECN.

- 01 April, 2022