TopBuild (BLD) is a leading purchaser, installer and distributor of insulation products to the U.S. construction industry, accounting for about 76% of revenues, observes small cap 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.
TopBuild made 6 acquisitions in 2017, two of which came in Q4, and then made three more acquisitions so far this year that will kick in $409 million on an annualized basis. Of this, USI which was acquired on 5/1, a company very similar to TopBuild will contribute $375 million annually.
So this is not only a play on the revival of the housing industry, and increasing levels of insulation being used, but also the consolidation of the fragmented insulation business.
Note that with consumer confidence strong, very low unemployment and demand outstripping supply in the housing market at all income levels, (i.e., low levels of housing inventory), things bode well for TopBuild and the industry.
Earlier, management said it feels “very comfortable” with its earlier guidance for 2018 which, including USI, is $2.34 to $2.4 billion in revenues and $263 to $284 million in EBITDA. They do not give quarterly or EPS guidance, but analysts see $4.12.
The company bases this on its expectation of housing starts between 1.25 and 1.28 million, which is still well below the historical average of 1.5 million. And of course after 9 years of prosperity and no recession in sight, you’d think we should be well over1.5 million units at this point in the cycle. With BLD trading below $80, the shares are rated a buy again.
