2. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 53
Builders FirstSource, Inc. (NYSE:BLDR) manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. The company operates through four segments: Northeast, Southeast, South, and West. Builders FirstSource, Inc. (NYSE:BLDR) was founded in 1998 and is based in Dallas, Texas.
Builders FirstSource, Inc. (NYSE:BLDR) reported its third-quarter earnings per share to be $3.39, beating expert estimates by $1.76. The company’s revenue grew by 139.98% year over year and was calculated to be $5.51 billion, beating revenue estimates by $683.59 million.
This November, BMO Capital analyst Ketan Mamtora raised his price target on Builders FirstSource, Inc. (NYSE:BLDR) to $76 from $67 and reiterated an Outperform rating on the shares after its third-quarter earnings beat estimates.
Builders FirstSource, Inc. (NYSE:BLDR) was a part of 53 hedge funds’ investment portfolios by the end of the third quarter of 2021. These hedge funds had total stakes worth $2.21 billion in the company.
According to the September filings, Coliseum Capital is the leading shareholder in Builders FirstSource, Inc. (NYSE:BLDR). The fund has stakes worth $460.62 million in the company.
Merion Road Capital Management, an investment management firm, published its third-quarter 2021 investor letter, in which it mentioned Builders FirstSource, Inc. (NYSE:BLDR). Here’s what the experts at Merion Road Capital Management had to say:
“I added to our position in Builder’s FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.
I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software to in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.
BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…”
