RBC Raises Price Target on Beacon Roofing Supply to $130 From $114, Keeps Outperform Rating

It has been about a month since the last earnings report for Beacon Roofing Supply (BECN). Shares have added about 22.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Beacon Roofing due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Beacon Q3 Earnings & Sales Miss, '24 Adjusted EBITDA View Down

Beacon reported lower-than-expected third-quarter 2024 results, with earnings and net sales missing the Zacks Consensus Estimate. The top line grew, while the bottom line declined year over year.

The year-over-year growth in the top line was backed by continued benefits realized from greenfield locations and acquired branches, along with strong demand trends for non-discretionary repair and reroofing. During the quarter, BECN added four greenfield locations in key markets, thereby boosting organic growth. Although softness in the overall activity level was a headwind, favorable price-cost across all lines of business driven by disciplined margin management aided the quarter’s results.

Going forward, the company aims to focus on accretive acquisitions, especially enhancing its non-residential and Canadian footprints to foster growth in the upcoming period and achieve its Ambition 2025 goals.

Beacon’s Earnings & Sales Discussion

Adjusted earnings per share of $2.80 missed the Zacks Consensus Estimate of $2.88 by 2.8% and plunged 1.8% from the year-ago adjusted level of $2.85.

Net sales of $2.77 billion also marginally missed the consensus mark of $2.78 billion by 0.2%. However, the top line increased 7.3% on a year-over-year basis.

Estimated organic volumes, which encompass greenfield projects, experienced a slight increase of 0-1%, while the weighted average selling price saw a rise of 1-2%. The inclusion of acquired branches accounted for 5.2% of the overall net sales.

Sales According to BECN’s Line of Business

Residential Roofing Products: Sales of this product line (comprising 50.7% of quarterly net sales) were $1.405 billion, up 2.3% from the year-ago quarter’s tally. The upside was primarily driven by price execution.

Non-Residential Roofing Products: Sales (comprising 26.7% of quarterly net sales) rose 9.4% from the year-ago quarter’s figure to $739 million owing to higher volumes driven by strong underlying market demand and solid market execution.

Complementary Building Products: Sales of this product line (comprising 22.6% of quarterly net sales) increased 17.2% year over year to $628.7 million. The rise in sales primarily stemmed from three waterproofing acquisitions totaling 20 branches since Sept. 30, 2023.

Operating Highlights of BECN

The gross margin of 26.3% was up 30 basis points (bps) year over year. The upside can be attributed to increased average selling prices, which offset higher product costs and non-residential product mix.

Adjusted EBITDA increased year over year to $325.2 million from $309.6. Yet, the adjusted EBITDA margin contracted 30 bps year over year to 11.7%.

Beacon’s Other Financial Details

As of Sept. 30, 2024, the company had cash and cash equivalents of $68 million, down from $84 million at 2023-end. Net long-term debt was $2.48 billion, up from the 2023-end value of $2.19 billion.

Net cash used in operating activities was $59.6 million in the first nine months of 2024 against $525.7 million cash provided by operating activities in the prior year.

BECN’s Revised Guidance

For the fourth quarter of 2024, Beacon anticipates net sales per day to be up in the mid-single digits from the year-ago period’s figure. The gross margin is expected to be in the mid-25% range compared with 25.7% a year ago. Net sales per day for October 2024 were up approximately 6% year over year.

Adjusted EBITDA is now expected to be in the range of $930-$950 million compared with earlier expectations of $930-$970 million.

The company now expects about 20 new greenfield locations in 2024 compared with prior expectations of 25 new locations.

Despite lower storm volume projections and the impact of higher interest rates on housing, Beacon remains optimistic about sustained demand for non-discretionary repair and re-roofing along with stable non-residential market demand.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Beacon Roofing has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Beacon Roofing has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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