On Jan 2, we upgraded our recommendation on
Beacon Roofing Supply, Inc.
), one of the three largest roofing material distributors in the
U.S. and Canada, to Neutral. While the company is likely to face
challenges such as pricing pressure and general market softness,
it will benefit from continued focus on acquisition and its
strong balance sheet position.
Why the Upgrade?
On Nov 26, Beacon Roofing reported adjusted earnings of 56 cents
per share for the fourth quarter of fiscal 2013 (ended Sep 30,
2013), down 7% year over year. The results fell short of the
Zacks Consensus Estimate of 62 cents. Despite record revenues and
continued cost control, lower gross margins led to the
Revenues in the quarter increased 14% year over year to a record
$683 million but missed the Zacks Consensus Estimate of $689
The company reported cash and cash equivalents of $47 million as
of Sep 30, 2013, up from $40 million as of Sep 30, 2012. Total
leverage ratio was low at 1.6x compared to 1.5x at the end of
2012. Additionally, interest coverage ratio of Beacon Roofing was
15.9x compared with 15.8x at the end of 2012. These metrics
demonstrate its balance sheet strength, which will benefit its
Beacon Roofing, a Zacks Rank #3 (Hold) stock, remains committed
to growth in core industry trends. The company opened seven new
branches in the fourth quarter and is on track to open another 15
to 20 branches in fiscal 2014.
For fiscal 2014, the company expects full-year earnings per share
to be at the lower end of the current published range of
$1.80-$1.70 owing to lower demand and a competitive environment.
In addition, the Architecture Billings Index fell to 49.8 in Nov
2013 from 51.6 a month earlier. A score below 50 indicates
contraction. The building and construction market continues to
suffer due to the uncertainty in demand for commercial,
industrial and institutional buildings. This in turn will affect
Beacon Roofing's sales.
Moreover, higher construction costs, labor shortage, lack of
funds for real estate projects and the adverse effects of
sequestration are likely to remain headwinds for the company.
Other Stocks to Consider
Better-ranked stocks in the same industry include
James Hardie Industries plc
CaesarStone Sdot-Yam Ltd.
Lumber Liquidators Holdings, Inc.
). While James Hardie Industries and CaesarStone Sdot-Yam have a
Zacks Rank #1 (Strong Buy), Lumber Liquidators Holdings carries a
Zacks Rank #2 (Buy).
BEACON ROOFING (BECN): Free Stock Analysis
CAESAR STONE SD (CSTE): Free Stock Analysis
JAMES HARDI-ADR (JHX): Free Stock Analysis
LUMBER LIQUIDAT (LL): Free Stock Analysis
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