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Why Shares of Builders FirstSource Are Soaring Today

What happened

Shares of Builders FirstSource (NASDAQ: BLDR) surged more than 13% by 2:30 p.m. EDT on Monday. Driving up the building materials supply company was a string of analyst upgrades following its strong second-quarter results last week.   

So what

An analyst at B. Riley FBR upgraded shares of Builders FirstSource from neutral to buy and raised their price target from $19 a share to $30 a share (about 12% above the current price). Driving this bullishness was the company's expectation-beating second-quarter results and strong intermediate-term outlook. The analyst sees rebounding demand for building materials coupled with materially higher lumber prices as catalysts for driving margin improvement over the coming quarters. 

A stack of 2 by 4s at a construction site, with a worker in the background.

Image source: Getty Images.

Meanwhile, an analyst at RBC Capital reaffirmed their outperform rating on the stock while increasing their price target from $24 to $31. Several factors drive the valuation increase, including higher lumber prices, stronger-than-expected demand reacceleration, and lower sales, general and administrative costs. Meanwhile, the analyst noted that the company made excellent strides improving its balance sheet last year, which gives it the flexibility to either return cash to shareholders or make acquisitions. 

Now what

Demand for building materials like lumber has spiked this year. That's mainly because stay-at-home orders to slow the spread of COVID-19 is causing people to rethink their living situations by either trading up to a new home (driving increased demand from homebuilders) or renovating their current place. One of the beneficiaries of this trend is Builders FirstSource. Analysts believe it will continue, which has them growing increasingly bullish on the company's prospects.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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