1) Builders FirstSource, Inc. (NYSE:BLDR)
Net Income on TTM Basis: $1.405. billion
5-Year Net Income CAGR: 43.91%
Number of Hedge Fund Holders: 59
Builders FirstSource, Inc. (NYSE:BLDR) manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, and consumers in the US.
Wall Street analysts believe that Builders FirstSource, Inc. (NYSE:BLDR)’s key strength lies in the robust balance sheet, that offers significant financial flexibility. As of March 31, 2024, it reported a low net leverage of 1.1x, placing it well for potential strategic moves. The company has a strong potential for significant capital deployment, which includes share buybacks and M&As.
The fragmented nature of the market offers significant opportunities for consolidation, and Builders FirstSource, Inc. (NYSE:BLDR)’s healthy financial position should enable it to capitalize on such prospects. Therefore, a strong market position, the ability for effective capital deployment, and diverse product and service offerings are expected to provide long-term revenue growth opportunities. The company completed 3 acquisitions and initiated a new $1 billion share repurchase plan.
In June, it acquired RPM Wood Products, which improves its ability to serve high-end custom builders in Northeast Florida. Builders FirstSource, Inc. (NYSE:BLDR) targets $1 billion in incremental sales by 2026 via its digital platform and it plans to focus on profitable market share growth and efficiency. The company expects a rebound in the multi-family sector in 2025.
Loop Capital increased its target price on the shares of Builders FirstSource, Inc. (NYSE:BLDR) from $190.00 to $230.00, giving a “Buy” rating on 20th September. Black Bear Value Partners, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials with a focus on residential construction. Historically this business was cyclical with minimal pricing power as the primary products sold were lumber and other non-value-add housing materials. Since the GFC, BLDR has focused on growing their value-add business that is now 50%+ of the topline. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 41% of the stock in the last ~3 years.
While mortgage rates are higher, they are not unusual versus history. The low rates of the last 5-10 years are the outlier. We have a structural shortage of housing in the USA. With existing homeowners locked into low-rate mortgages, the aspiring homeowner may increasingly need to find a home from a homebuilder.
Normalized free cash flow per share looks to be in the range of $13-$16 per year. Margins are structurally higher given their increased shift into value-add products. At quarter end pricing of ~$194 that implies a free-cash-flow yield of 7-8% which does not reflect the long-term housing needs or their pricing power.”
While we acknowledge the potential of BLDR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than BLDR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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