TopBuild: Insulated Gains in Building Products

11/15/2017 5:00 am EST

Focus: INDUSTRIALS

Tom Bishop

Founder, BI Research

TopBuild (BLD) is first and foremost a leading purchaser, installer and distributor of insulation products to the U.S. construction industry accounting for about 76% of revenues, explains small cap investing expert Tom Bishop, editor of BI Research.

In addition, the company distributes, and can also install, other building products such as gutters, garage doors, shower enclosures, fire retardants, etc. Its largest end market is residential with 69% of revenues, followed by commercial with 19% of revenues and repair and remodels at 12%.

With U.S. housing starts still well below the fifty-year average of 1.5 million, the company believes the current housing recovery has plenty of room to grow, especially with the economy strong and buyers forced to move sooner than later given the threat of steadily, albeit slowly, rising interest rates.


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Hurricane repairs estimated at $150 billion due to flooding caused by Harvey (and other hurricanes this season and lately even wildfires) will require new insulation as well as wall board, adding another driver here.

In addition to the residential market getting back to and hopefully above historic average annual starts, TopBuild is excited about its growth prospects on the commercial side which it estimates to expand at a minimum of 12% per year.

Management provided guidance for 2017 including revenues coming in around $1.9 billion and adjusted EPS between $183 and $193 million. Analysts expect EPS of around $2.80, up from last year’s $1.96, followed by $3.50 next year.

For now mortgage rates remain near historic lows, the economy and the housing market in general remain robust, the unemployment rate is just 4.4% and the stock market is on an 8-year bull run adding to the wealth effect. As a result, consumer confidence is high and conducive to buying a house. The stock is a buy.

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