On Wednesday, DA Davidson maintained a Neutral rating on Builders FirstSource (NYSE: BLDR) but increased the price target to $175 from the previous $169. This adjustment came after the company's shares rose due to another quarter of gross margins surpassing expectations, which led to an EBITDA performance that exceeded estimates. This occurred despite core organic sales not meeting expectations.
Builders FirstSource experienced a trading boost following the report of higher-than-anticipated gross margins. The company's exit-rate gross margins saw a slight improvement, now at 31.5%, which allowed the maintenance of the midpoint (MP) of the full-year EBITDA outlook, even with lower sales figures.
The firm provided initial scenarios for 2025, which suggest a potential recovery in sales performance relative to single-family (SF) housing starts. However, the scenarios also indicated that there might be limited room for estimates to rise. DA Davidson's revised price target reflects these considerations and the analyst's view of the company's current market valuation.
The updated price target of $175 represents a modest increase from the previous target but comes with the perspective that the stock's valuation, trading at 10 times the estimated 2025 EBITDA, is seen as full. This suggests that DA Davidson does not anticipate a significant change in the stock's value in the near term.
In other recent news, Builders FirstSource reported a mixed bag for its Q3 results, with earnings surpassing analyst expectations but revenue falling short. The company posted adjusted earnings per share of $3.07, beating the consensus estimate of $2.96.
However, its revenue declined by 6.7% year-over-year, reaching $4.2 billion and missing analyst projections of $4.44 billion. Amid these developments, Builders FirstSource has lowered its full-year outlook.
The company now anticipates its full-year 2024 revenue to be between $16.25-16.55 billion, a decrease from the previously expected $16.85 billion. Adjusted EBITDA is now projected to be between $2.25-2.35 billion, with margins ranging from 13.8-14.2%.
In terms of other company news, Builders FirstSource repurchased 0.9 million shares for $159.7 million in Q3 and completed six acquisitions to bolster its value-added products strategy. These are among the recent developments for the company.
InvestingPro Insights
Builders FirstSource's recent performance aligns with several key insights from InvestingPro. The company's strong gross profit margin of 34.1% in the last twelve months supports DA Davidson's observation of surpassing margin expectations. This robust profitability is further reflected in the company's P/E ratio of 14.89, indicating a relatively attractive valuation compared to its earnings.
An InvestingPro Tip highlights that BLDR has been a "Prominent player in the Building Products industry," which is consistent with its ability to maintain strong margins and exceed EBITDA estimates despite challenging market conditions. Additionally, the tip noting "Management has been aggressively buying back shares" suggests confidence in the company's future prospects, potentially supporting the stock's performance.
The company's market cap of $20.91 billion and revenue of $17.03 billion in the last twelve months underscore its significant presence in the industry. However, the revenue growth of -8.09% over the same period aligns with the challenges mentioned in the article regarding core organic sales not meeting expectations.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Builders FirstSource, providing a deeper understanding of the company's financial health and market position.
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