5 Home Improvement Stocks to Buy Now

3. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 57

Builders FirstSource, Inc. (NYSE:BLDR) is a Dallas, Texas-based supplier of building materials, prefabricated components, and value-added services in the U.S. Overall, 57 funds held a stake in Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2 2022.

Joseph Ahlersmeyer at Deutsche Bank initiated coverage on Builders FirstSource, Inc. (NYSE:BLDR) stock with a ‘Buy’ rating and a target price of $93 on August 17. The analyst has a bullish outlook on the home improvement industry due to the aging profile of U.S. homes along with the high mortgage rates prevalent in the market, which has locked current homeowners into their present locations. The price appreciation of homes is also playing a role in encouraging people to renovate their existing houses. Experts anticipate continued strength during the second-half of the year and throughout 2023, which will aid Builders FirstSource, Inc. (NYSE:BLDR) in generating healthy free cash flow, which it can then use for share repurchases and acquisitions.

Here’s what Black Bear Value Partners said about Builders FirstSource, Inc. (NYSE:BLDR) in its Q1 2022 investor letter:

“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.

The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.

BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 13-19% free-cash flow yield so little growth is needed for us to compound value at high rates.”