Beacon Roofing Supply: Shares Deserve More Upside After Shooting Through The Roof

Core Viewpoint - Beacon Roofing Supply has shown significant stock price appreciation and continues to present investment opportunities despite mixed financial performance [2][15]. Company Overview - Beacon Roofing Supply operates as a distributor of roofing materials and complementary building products, with a market capitalization of $5.94 billion and 542 branches across the US and Canada [1]. - The company offers over 130,000 SKUs and services nearly 100,000 customers [1]. Financial Performance - For the first quarter of the 2024 fiscal year, revenue reached $1.91 billion, a 10.4% increase from $1.73 billion in the same period of 2023 [3]. - Organic revenue increased by 7.2%, with acquisitions contributing approximately $54.9 million to revenue [3]. - Residential roofing products revenue grew by 9.1%, while non-residential roofing products revenue increased by 17.6% [5]. - Net income fell from $16.3 million to $5.6 million, attributed to a decline in gross profit margin and increased selling, general, and administrative costs [6]. Profitability Metrics - Operating cash flow decreased from $101.2 million to negative $140.8 million, and EBITDA contracted from $113 million to $103.1 million [7]. - Management expects EBITDA for the 2024 fiscal year to be between $930 million and $990 million, with a projected net income of approximately $449.2 million [8]. Valuation - Beacon Roofing Supply is considered attractively priced compared to peers, with a price-to-earnings ratio of 13.7 and a price-to-operating cash flow ratio of 9.1 [9]. - The company is the cheapest among five comparable firms on a price-to-earnings basis [9]. Growth Strategy - Management plans to open about 10 new facilities annually, targeting $200 million in revenue from these locations by 2025 [10]. - The company aims to achieve $1 billion in annual revenue from acquisitions and increase digital revenue to 25% by 2025 [11]. - The TRI-BUILT brand is expected to generate $1 billion in revenue by 2025, contributing an additional $100 million to EBITDA [11]. Share Buyback Program - The company allocated $110.9 million for share buybacks in 2023 and has entered into an agreement to repurchase $225 million worth of stock [14]. Conclusion - Despite mixed financial results, Beacon Roofing Supply is on a positive trajectory with attractive stock pricing and ongoing investments in growth initiatives, warranting a 'buy' rating [15].