Beacon Roofing Supply, Inc.BECN , the second-largest distributor of residential and non-residential roofing materials in the U.S. and Canada, has been performing well of late. We are positive on the company's prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
What's Working in Favor of Beacon Roofing?
Favorable Zacks Rank, Score: Beacon Roofing carries a Zacks Rank #2 (Buy) and a VGM score of "B". Here V stands for Value, G for Growth and M for Momentum. Beacon Roofing's score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners.
Price Performance: Beacon Roofing's share price has surged 52.2% in the last two years, outperforming the Zacks categorized Building Products-Retail/Wholesale sub industry's gain of 28.9%.
We note that the industry is also favorably placed as it occupies a space in the top 48% of the Zacks classified industries (124 out of the 256).
Upbeat Company Guidance: During the second-quarter fiscal 2017 conference call, the company increased total revenue growth range to 6-9% from the prior 3-7% for fiscal 2017. Organic growth guidance remains at 3-5% or 4-6% on a daily basis. Recent housing market data involving new home construction and existing home sales continue to witness positive trend. Earnings per share is expected at around $2.34. The company will continue to focus on revenue growth, both organically and through acquisitions while improving margins and operating expense leverage in fiscal 2017.
Estimates Moving Up: Annual estimates for Bacon Roofing have moved north in the past 60 days, reflecting analysts' confidence on the stock. In this period, the Zacks Consensus Estimate for 2017 has increased by around 1% to $2.37 per share. The Zacks Consensus Estimate for 2018 has also moved up 2% to $2.71.
Healthy Growth Prospects: The Zacks Consensus Estimate for revenues is at $4.45 billion for fiscal 2017, reflecting 7.83% year-over-year growth, within management's guidance. The estimate for fiscal 2018 of $4.69 billion projects 5.42% annual growth. The Zacks Consensus Estimate for earnings for fiscal 2017 is pegged at $2.37, higher than management's guidance and depicting growth of 12.95%. The estimate for fiscal 2018 reflects year-over-year growth of 14.25%.
The stock has an estimated long-term earnings growth rate of 13.75%.
Positive Earnings Surprise History: Beacon Roofing has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 7.84%.
Beacon Roofing continues to balance year-to-year branch opening strategy with potential acquisitions. In addition to growth through acquisitions, the company also remains focused on attaining organic growth. Utilizing technology, it continues to drive selling effectiveness through CRM platform and has more than 1000 key employees utilizing this tool. Further, the company is in the early stages of its eCommerce rollout, which will enhance customer productivity and sales. It is also progressing toward two-step selling to lumber dealers and national account expansion businesses. These are key elements of its growth strategy along with acquisitions, greenfield branches and existing branch organic growth.
Economic indicators suggest continued recovery for residential and commercial end markets. The housing scenario will remain favorable in 2017 with economists anticipating a low-double digit increase in single-family housing starts and a low to mid-single -digit increase in existing home sales. Housing turnover will likely be a catalyst in triggering re-roofing activity. Historically, 75−80% of Beacon roofing revenues is related to re-roofing. The aging U.S. housing stock in addition with below average roofing shingle volumes, reinforces a favorable supply/demand dynamic in the residential repair and remodel market in the future. Given that Beacon Roofing is the second largest distributor of residential and non-residential roofing materials in the U.S., it is poised to benefit from this growth.
Other Stocks to Consider
Some other top-ranked stocks worth considering in the sector include Aaron's, Inc. AAN , Dave & Buster's Entertainment, Inc. PLAY and The Children's Place, Inc. PLCE . These three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Aaron's has delivered an average earnings surprise of 10.55% in the trailing four quarters. Dave & Buster's and Children's Place delivered an average positive earnings surprise of 30.49% and 36.55%, respectively in the past four quarters.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.