2. Builders FirstSource, Inc. (NYSE:BLDR)
Interval Partners’ Stake Value: $57,433,000
Percentage of Interval Partners’ 13F Portfolio: 2.37%
Number of Hedge Fund Holders: 60
Builders FirstSource, Inc. (NYSE:BLDR) manufactures and supplies building materials, and it is the largest supplier of building products, prefabricated components and value-added services in the United States. The main clientele for Builders FirstSource, Inc. (NYSE:BLDR) belongs to the residential construction sector, as well as individuals invested in repair and remodeling. Operating in 550 locations across 40 states in the US, Builders FirstSource, Inc. (NYSE:BLDR) is one of the top stocks in Gregg Moskowitz’ 13F portfolio.
Interval Partners owns 1.34 million shares in Builders FirstSource, Inc. (NYSE:BLDR) as of Q2, amounting to $57.43 million, representing 2.37% of Moskowitz’ 13F portfolio.
Ken Fisher’s Fisher Asset Management owns 190,754 shares in Builders FirstSource, Inc. (NYSE:BLDR), valued at $9.87 million. Overall, 60 hedge funds tracked by Insider Monkey were long Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2, up from 48 in Q1.
Here is what Merion Road Capital Management has to say about Builders FirstSource, Inc. in its Q3 2021 investor letter:
“I added to our position in Builders 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 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…” (Click here to see the full text)
