6. Builders FirstSource Inc. (NASDAQ:BLDR)
Number of Hedge Fund Investors: 59
Builders FirstSource Inc. (NASDAQ:BLDR) is a leading U.S. supplier of building materials and construction services, benefiting greatly from its large network and scale. This strong position enables Builders FirstSource Inc. (NASDAQ:BLDR) to capitalize on the high demand for new homes and home improvements, driven by limited housing supply and favorable demographics. Recent strategic acquisitions, such as BMC Stock Holdings, have broadened Builders FirstSource Inc. (NASDAQ:BLDR)’s product offerings and expanded its reach into high-growth regions. These acquisitions also allow Builders FirstSource Inc. (NASDAQ:BLDR) to offer valuable services, like off-site construction solutions, which are becoming more popular.
In its latest Q2 2024 earnings report, Builders FirstSource Inc. (NASDAQ:BLDR) reported revenue of $5.1 billion, a 6.4% increase from the previous quarter, thanks to strong sales growth in core products and services. Builders FirstSource Inc. (NASDAQ:BLDR)’s adjusted EBITDA of $907 million reflects improved profit margins due to better operational efficiencies and pricing.
Despite some market challenges, Builders FirstSource Inc. (NASDAQ:BLDR) has shown financial resilience and effective cost management. Builders FirstSource Inc. (NASDAQ:BLDR) is also investing heavily in technology and digital tools to improve construction efficiency and automation. This focus on innovation, including prefabricated components and advanced digital solutions, enhances its competitive edge and boosts profit margins.
With its stock trading at a lower valuation compared to peers, Builders FirstSource Inc. (NASDAQ:BLDR) offers a promising investment opportunity. Its solid cash flow supports ongoing growth investments, shareholder returns through dividends and stock repurchases, and a disciplined capital allocation strategy. Recent moves, such as acquiring Fulcrum Building Group and enhancing its digital platform, further strengthen its market position and long-term growth prospects.
Black Bear Value Partners stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“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 ~$138 that implies a free-cash-flow yield of 9-12%. which does not reflect the long-term housing needs or their pricing power.”
