BECN stock is the IBD Stock Of The Day as the roofing supplier flashes a bullish signal near a buy point in a tough stock market.
Beacon Roofing Supply boasts that 80% of its revenue derives from repair and remodeling demand, which it characterizes as non-discretionary. Only 20% comes from new construction. That could perhaps cushion the Herndon, Va.-based company from the vagaries of the highly cyclical homebuilding market, which is wilting amid the rise in mortgage interest rates.
Its "Ambition 2025" financial targets, given in February, call for above-market growth.
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Since the start of 2020, Beacon touts growth on the back of new executive leadership. It made a couple of acquisitions last year and shed a solar products business to focus on the core business — roofing materials.
In residential construction, demand drivers include higher single-household formation, shortage of houses, aging housing stock and the move to suburbs, Beacon says.
In commercial construction, the company reports improving market sentiment. It expects to benefit from strong warehouse development and the Covid-19 rebound.
Industry peer W.W. Grainger belongs to the IBD 50 list of top growth stocks.
Housing Market And Interest Rates
The housing market is extremely sensitive to interest rates, which are near historic lows but on the rise. The 30-year fixed mortgage rate has risen to near 5% for the first time in over a decade.
BECN Stock Technical Analysis
Shares of Beacon Roofing Supply rose 1.6% to 60.56 on the stock market today, finding support at its 50-day line once again. BECN stock sits roughly 7% below a 63.74 buy point from a flat base on top of longer consolidations. The base started to form shortly after BECN surged in mid-March on the announcement of an accelerated $125 million share repurchase agreement.
Beacon stock also sits above the 21-day exponential moving average whereas the major stock indexes are back below key support levels amid fears fueled by recent S&P 500 earnings outlooks, the Russian invasion, inflation and rate hikes.
While Beacon stock hasn't made much progress in the past year, the relative strength line has risen to its best level in nearly four years, within a longer-term downtrend, according to MarketSmith chart analysis. On a weekly MarketSmith chart, that strength showed as it hit a bullish new high Monday ahead of a potential breakout, marked by a blue dot on the end of the RS line. A rising RS line means that a stock is outperforming the S&P 500.
Grainger stock fell 1.8% Monday to undercut the 50-day average, after its latest breakout attempt fizzled.
Both BECN and GWW belongs to the Building Products-Retail/Wholesale group.
Among 21 stocks in this group, Beacon is No. 6 in terms of its IBD Composite Rating while Grainger is No. 1. Beacon earns a solid Comp Rating of 88 out of 99. The rating combines key fundamental and technical metrics in a single easy-to-use score.
The group itself ranks a weak No. 101 out of 197 industry groups tracked by IBD.
More broadly, homebuilders, building materials makers and housing-related retailers have struggled mightily in the past few months.
An IBD Relative Strength Rating of 90 means that Beacon Roofing Supply has outperformed nine out of 10 stocks in IBD's database over the past year.
Beacon Roofing Supply Earnings And Fundamental Analysis
The building supplies distributor bears a solid EPS Rating of 85 out of 99. Beacon describes the last couple years as a transformational period, during which it began to unlock potential. Its new targets call for "above-market" annual sales growth of 8% through 2025. It also targets annual adjusted EBITDA growth of 10%.
For the December quarter, Beacon reported adjusted EBITDA of $174 million, up 22% vs. a year earlier. Net sales rose 11% year over year. Beacon's earnings release noted the quarter marked a "transition period" in a fiscal-year switch.
Results showed "positive momentum entering 2022, as we again generated record top-line and bottom-line results," Beacon CEO Julian Francis said in the Q4 earnings release.
The company acquired Midway Wholesale and Crabtree Siding in 2021 to expand in key markets, while shedding the solar business. It touts 50-plus acquisitions prior to 2021.
Beacon reports earnings for the first quarter late Thursday.
Analysts polled by FactSet expect the current quarter to be challenging. However, they expect Beacon earnings per share to grow 13% in all of 2022 as sales rise 10%. They forecast both earning and sales growth in the low-to-mid-single digits for 2023.
Beacon holds an SMR Rating of C, on a scale of A to a worst E. The SMR Rating is a combined measure of sales growth, profit margins and return on equity.
Beacon stock shows eight quarters of rising fund ownership. Some 427 funds owned BECN stock as of March, up from 420 at the end of 2021, according to the IBD Stock Checkup tool.
