We are upgrading our recommendation on
Beacon Roofing Supply, Inc.
) to Outperform, following a modest recovery in the housing market,
healthy credit conditions and ramp up in the company's acquisition
The company reported earnings of 7 cents per share in the
second-quarter 2012, easily beating the Zacks Consensus Estimate of
a loss of 8 cents. Results improved compared to a loss of 13 cents
in the year-ago quarter. Total revenues increased 33.4% year over
year to $395.2 million, surpassing the Zacks Consensus Estimate of
$346 million. Organic growth improved 28.2%.
The housing market is gradually looking up, reaping the benefits
from escalation in employment rates and higher consumer confidence.
At the same time, roofing demand is also increasing modestly and is
expected to grow at an annual rate of 5.7% through 2015.
Alongside, the demand for re-roofing is also on the rise. The
median age of the housing stock is over 35 years old and since an
aging housing stock increases the demand for roofing materials, it
provides ample scope for Beacon to grow in this market.
Beacon has completed the acquisition of the leading wholesale
distributor of building products, Cassady Pierce Company. Cassady
Pierce chiefly caters to the professional roofer, remodeling
contractor, builder, general contractor and retail home center
markets of Western Pennsylvania, Northern West Virginia and the
Eastern countries of Ohio.
The acquisition will help Beacon in expanding its business
activities in the unexplored regions of Pennsylvania. Further, it
will augment the company's product portfolio in the lines of
Recently, Beacon entered into a new five-year senior secured credit
facility that includes a $550 million U.S. credit facility and a
C$15 million ($15.1 million) Canadian credit facility with Wells
Fargo Bank, National Association, an unit of
Wells Fargo & Company
The credit facility refinanced the company's prior $515 million
credit facilities that were provided through GE Antares and an
affiliate. The new credit facility's interest rates are at
historically low levels. It provides an attractive LIBOR margin
pricing, low interest rates, reasonable financial covenants, as
well as substantial liquidity and financial flexibility for the
company to pursue acquisitions and growth opportunities.
Beacon's growth strategy, however, depends largely on acquisitions;
the primary growth driver since its inception. The company,
therefore, faces challenges from acquisition related risks. For
instance, management may have trouble finding suitable acquisition
candidates that provide synergies in existing markets and upfront
Moreover, Beacon has to contend with privately held companies like
American Builders & Contractors Supply Co., Inc., Guardian
Building Products Distribution, Inc., Stock Building Supply LLC.
Our recommendation on Beacon is in line with a short-term Zacks #1
Rank (Strong Buy).
BEACON ROOFING (BECN): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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