3. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 59
Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials. It offers a wide range of manufactured components and construction services. The company caters primarily to professional homebuilders, subcontractors, remodelers, and individual consumers in the U.S. construction industry. During the episode, Cramer advised not to hesitate and wait. He said:
“… the pure play housing supplier for the pros is actually Builder First Source, a niche wholesaler that we’ve featured on the show repeatedly. [The] stock was up 40.1% in the quarter. Again, you cannot wait for Builder First Source to put up big numbers before you buy it, this is an obvious rate-cut winner so you got to get in ahead of time.”
As reported by Research and Markets, the U.S. construction industry is projected to grow by 5.6% in 2024, reaching a total value of $1.27 trillion. It has a projected annual growth rate of 4.7% through 2028, potentially hitting $1.53 trillion. Additionally, lower interest rates may stimulate demand for real estate, drive infrastructure investments, and boost consumer spending.
Builders FirstSource (NYSE:BLDR) has consistently pursued growth through an emphasis on value-added products and services. The approach is seen in recent acquisitions aimed at strengthening market position and expanding geographic reach.
In July, the company announced the acquisition of Western Truss & Components based in Flagstaff, Arizona, and CRi SoCal, located in Orange County, California. Such transactions are in line with its disciplined merger and acquisition strategy, which focuses on improving customer retention and extending leadership in value-added and specialty solutions.
During a recent earnings call, management expressed confidence in the health of the company’s M&A pipeline, indicating a continued ability to acquire in a fragmented market.
Bonhoeffer Capital Management stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“Public Leverage Buyouts are public companies that use leverage to boost equity returns from historically stable cash flow businesses. Our broadcast TV franchises, leasing, building products distributors and dealerships fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock, and the process is repeated. This strategy’s effectiveness is dependent upon the spread between the interest rates of their loans and the cash returns from the core business and acquisitions. Over the past few months, long-term interest rates have been declining and short-term rates are expected to follow so a large and growing spread is available to firms. An example is Builders FirstSource, Inc. (NYSE:BLDR) which has a high return on capital. One way to measure future expected returns are post-synergy cash flow ratios paid for acquisitions. Another way to measure future growth in expected returns is via incremental return on incremental invested capital (“RoIIC”)
Many of our holdings used the acquisition/buyback model described above. Some of these firms have also used modest leverage to magnify the returns of equity to 20% and above over the past five to ten years using the acquisition/buyback model. These firms include: Terravest, Asbury Automobile, Ashtead, Autohellas, BFS, and Millicom. In addition, many of these firms are buying back stock and the modest current valuations make these buybacks accretive…” (Click here to read the full text)
