On Jul 10, 2014, we issued an updated research report on
Beacon Roofing Supply, Inc.
). The roofing material distributor will continue to benefit from
its greenfield investment strategy and balance sheet strength,
while conservative outlook and pricing pressure remain areas of
Notably, Beacon Roofing opened 4 new greenfields in the second
quarter of fiscal 2014, which brings the count to 8 for the year
and 17 since last year. The company aims to open 25 additional
branches through rest of the year. These new branches should add
2%-3% to organic growth for the year. For 2015 and beyond, Beacon
Roofing is planning to open at least 20 branches per year. With
growth in core industry trends, we expect the greenfield openings
to continue at an accelerated pace in the near term.
Beacon Roofing's growth strategy is also likely to benefit from its
strong balance sheet position which is evident from its strong
metrics. The company reported cash and cash equivalents of $34
million as of Mar 31, 2014, up from $16.7 million as of Mar 31,
2013. Total leverage ratio was at 1.59x at the end of second
quarter compared with 1.62x at the year-ago comparable period. The
debt-to-capitalization ratio remains low at 4.5% as of Mar 31,
2014. In addition, interest coverage ratio of Beacon Roofing was
16.2x at the end of second quarter compared with 15.07x at the end
of last year.
Despite these positives, Beacon Roofing expects earnings per share
to be at the lower end of the current guidance range of $1.50 to
$1.80. Beacon Roofing has expanded its business through strategic
acquisitions and diversification of its product offering. However,
over the last 18 months the company has been inactive on the
acquisition front. This puts the company's strategy of growing
though acquisitions at risk.
Further, One of Beacon Roofing's suppliers, Owens Corning, recently
announced that roofing volumes for the first half of 2014 will be
20%, lower than the year-ago level because of slow growth in the
homebuilding sector. This may affect Beacon Roofing's profitability
in the near term. In addition, general market softness and pricing
pressure remain areas of concern going forward.
Additionally, increase in competition, general market softness,
lack of strategic acquisitions and pricing pressure remain matters
of concern going forward.
Beacon Roofing currently carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked stocks in the same industry include
Advance Auto Parts Inc.
). All of these stocks have a Zacks Rank #2 (Buy).
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