Zacks Industry Outlook Highlights Lowe’s Companies, Fastenal, Builders FirstSource, Beacon Roofing Supply and Tecnoglass
For Immediate Release
Chicago, IL – April 13, 2023 – Today, Zacks Equity Research discusses Lowe’s Companies Inc. LOW, Fastenal Co. FAST, Builders FirstSource, Inc. BLDR, Beacon Roofing Supply BECN and Tecnoglass TGLS.
Industry: Building Products – Retail
The Zacks Building Products – Retail industry is poised to gain from the continued strong consumer demand trends for home renovation and maintenance activities amid rising interest rates and home prices. The industry players are expected to gain from accretive acquisitions and digital initiatives.
Further, the companies are likely to benefit from the successful execution of technology initiatives to bolster e-commerce growth. However, severe constraints related to supply chains and labor availability, along with product and transportation cost inflation, are worrisome.
Continued innovation and e-commerce expansion, and strong demand are likely to benefit industry participants like Lowe’s Companies Inc., Fastenal Co., Builders FirstSource, Inc., Beacon Roofing Supply and Tecnoglass.
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceiling systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services.
A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, and lawn and garden decor products. Some players deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
3 Trends Shaping the Future of Building Products – Retail Industry
Digitization in Focus: Retail Building Products industry participants have been witnessing a surge in online business transactions, owing to consumers’ growing digital dependency. Companies have, therefore, been strengthening their digital presence by expanding the availability of online assortments and bolstering omni-channel capabilities.
Such prudent measures have been aiding the companies to meet the accelerated demand. Companies are also ramping up their delivery operations in order to provide safe and swift services. The digital transaction boom should continue to drive the top lines of the key industry players.
Adherence to Home Refurbishing Activities: With rising inflation, interest rates, and increased construction costs and home prices, consumers are inclined toward renovating their homes instead of buying one. With the increasing work-from-home trend, consumers continue to invest in making homes enjoyable and comfortable.
Industry experts opine that consumers’ discretionary spending on homes will continue, as interests in keeping houses well-maintained are here to stay. Revamping interiors to facilitate work-from-home and entertainment needs continues to be a major trend. Do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures are being widely undertaken.
Additionally, consumers are open to hiring professional help to complete their home renovations, resulting in rising demand for Pro projects. This is likely to aid companies in the home improvement space, with a focus on building Pro offerings.
Rising Costs: Inflationary pressures, tight supply chains and labor shortages have been concerning for players in the home improvement industry. Such increased costs are likely to put pressure on margins. Some companies have provided conservative views for 2023 based on assumptions about lower consumer spending trends, normalized transactions and continued investments to capture market share.
Many economists have projected flat real economic growth and consumer spending for 2023. The industry is expected to witness gradual normalization in transactions as consumer spending has shifted from goods to services. The continued shift is likely to result in a low-single-digit decline in the home improvement market.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider buying for your portfolio. But before that, it is worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 over the past year.
The industry has dipped 3.6% in the past year, whereas the broader sector declined 15.5%. Meanwhile, the S&P 500 has registered an 8.2% fall in the same period.
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 16.33X compared with the S&P 500’s 18.48X. Further, the sector’s forward-12-month P/E stands at 22.22X.
Over the last five years, the industry traded as high as 23.43X and as low as 14.25X, with the median at 19.04X.
5 Building Products Stocks to Watch
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows, and associated aluminum products serving the global residential and commercial end markets. Tecnoglass has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements, and focus on execution. The company has been delivering strong results for its single-family residential business, which has a shorter cash cycle.
Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues. The Zacks Rank #1 (Strong Buy) company has been committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has rallied 75.8% in a year. The Zacks Consensus Estimate for TGLS’ current fiscal-year sales and earnings indicates growth of 13.4% and 15.4%, respectively, from the year-ago quarter. The consensus estimate for the current fiscal-year earnings has been unchanged in the past 30 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Fastenal: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies. The company’s focus on virtual platforms to boost customer engagement is boosting sales and driving growth. Cost-control strategies like automating warehouses, increasing delivery efficiency through its trucking network, and selling more private-level products with higher margins are aiding FAST to improve efficiency, thereby increasing returns.
Industrial vending is one of the primary growth drivers for Fastenal and has the potential to significantly increase sales and profits. The Zacks Rank #2 (Buy) company is striving to boost its onsite location portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has declined 10.7% in a year. The Zacks Consensus Estimate for the company’s current fiscal-year sales and earnings indicates growth of 5.3% and 3.2% year over year, respectively. The consensus estimate for current fiscal-year earnings has moved up by a penny in the past seven days.
Lowe’s: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company has been enhancing the experience of its pro customers by upgrading pro-focused brands and revamping the pro-service business’s website. The company has also been well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category.
Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long terms. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
Lowe’s has been progressing well with advancements in the digital channel. The company is investing in enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. Shares of the Zacks Rank #3 (Hold) company have declined 2.1% in a year.
The Zacks Consensus Estimate for its current fiscal year’s sales and earnings indicates declines of 8.5% and 0.4%, respectively, from the year-ago quarter. The consensus estimate for current fiscal-year earnings has moved up by a penny in the past 30 days.
Builders FirstSource: The Dallas, TX-based company manufactures and supplies building materials. The company has been benefiting from its focus on cost synergies, strategic acquisition, and robust demand from solid housing and repair and remodeling activities. Robust demand for single-family housing,
R&R and other activities have been tailwinds for the company’s products and services. Builders FirstSource continues to focus on investing in innovations and enhancing digital solutions for its customers.
Acquisitions are important for Builders FirstSource’s growth strategy to supplement its organic growth and expand extensively across vast geographic boundaries. The Zacks Rank #3 company has been active on the acquisition front, which is supporting the top line. It is also focusing on cost-management practices. The BLDR stock has risen 48.7% in a year.
The Zacks Consensus Estimate for the company’s current fiscal-year sales and earnings indicates declines of 29.8% and 62.6%, respectively, from the prior-year period’s reported figures. The consensus estimate for the current fiscal-year earnings has moved down 2.1% in the past 30 days.
Beacon: The company is the largest publicly-traded distributor of residential and non-residential roofing materials, along with complementary building products, in the United States and Canada. The company has been benefiting from strategic initiatives and the successful execution of its technology initiative in the growing e-commerce platform. It is on track with its Ambition 2025 targets, which emphasize operational excellence, above-market growth trajectory and accelerated stockholder value creation. Beacon has been focusing on business expansion through bolt-on acquisitions, thereby expanding its reach.
Beacon is expanding its digital platform in value-added ways. It has been on track with the long-term target of generating $1 billion in annual digital sales. Disciplined pricing in a volatile, supply-constrained marketplace, and effective and timely sourcing have been aiding margins. Cost-saving efforts and productivity initiatives are expected to go a long way in bringing down the Zacks Rank #3 company’s operating expenses, thereby driving margins. The BECN stock has dipped 0.3% in a year.
The Zacks Consensus Estimate for BECN’s current fiscal-year sales indicates growth of 2.3% year over year. The consensus estimate for current fiscal-year earnings has been unchanged in the past 30 days.
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Fastenal Company (FAST) : Free Stock Analysis Report
Lowe’s Companies, Inc. (LOW) : Free Stock Analysis Report
Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
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