BUILDERS FIRSTSOURCE BLDR
September 03, 2015 - 8:18pm EST by
ringo962
2015 2016
Price: 15.32 EPS 0 0
Shares Out. (in M): 110 P/E 0 0
Market Cap (in $M): 1,685 P/FCF 0 0
Net Debt (in $M): 2,087 EBIT 0 0
TEV ($): 3,772 TEV/EBIT 0 0

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Description

Builders FirstSource

 

Builders FirstSource is a leading supplier and manufacturer of structural building products for home builders. This summer, BLDR acquired ProBuild Holdings, a much larger competitive company that operates lumber yards, gypsum centers and other distribution facilities serving the residential construction market. The deal, which closed a month ago, creates the number one player by market share in the industry. With debt:EBITDA above 5X, BLDR is a highly asymmetrical wager on the continued growth of new construction in the United States. If the management team is successful, the stock has the potential to appreciate to multiples of the current price. Thankfully, this management team has led the company through two downturns before and through much more difficult credit conditions.

 

Company Background

 

BLDR was formed in 1998 when JLL Partners, a middle market PE firm, partnered with Floyd Sherman, the current CEO of BLDR, to acquire companies in the building products space. The company completed 24 acquisitions through 2001, then went public in 2005. In 2006, JLL sold half their interest in the company to Warburg Pincus. While JLL is no longer a material shareholder, Warburg Pincus retains ownership of 19% of BLDR pro forma for the recent secondary offering.

 

BLDR generated negative cash flow throughout the housing downturn and the years after. The company survived thanks to its low leverage at the time (less than 2X 2006 and 2007 EBITDA), cash generated by working capital reductions, retroactive tax refunds received in 2010, and opportunistic debt issuances in 2008 and 2011. While their stock was down over 90% during the period, BLDR performed far better than their close peers Stock Building Supply and BMC Select, which both went bankrupt during the downturn. BLDR subsequently returned to EBITDA positive in 2012. Since then, the company has been deleveraging through earnings growth, while also resuming tuck-in acquisitions.

 

Early in its history, BLDR pioneered a business model now core to its value proposition. Rather than simply supplying lumber for construction sites (this does remain a low margin product line for BLDR), the company developed the prefabricated millwork and component business. In this model, BLDR assembles wall units, staircases, door assemblies, roof trusses and other products at their factories. The customer gets reduced labor costs due to the automation of a factory, just in time delivery, and faster completion times. BLDR gets margins associated with value-added manufacturing, not simple distribution, and a competitive advantage against other suppliers who cannot match the level of expertise and logistics necessary to offer this service. The comparison to ProBuild is instructive — despite being three times larger than BLDR, ProBuild derives only 32% of revenue from value-added products, vs. 53% at BLDR.

 

It should be noted that home builders across the country report that the shortage of skilled tradesmen is the biggest problem facing their business. The prefabricated products offered by BLDR are a great solution to this problem and should continue to gain share over time.

 

ProBuild Acquisition

 

Announced in April, this deal is the first strategic acquisition for BLDR, which in the past had growth through multiple tuck-in deals in addition to end market growth and share gains. Like BLDR, ProBuild was owned by a PE firm, in this case Devonshire Investors, a firm affiliated with Fidelity. Also like BLDR, ProBuild survived 2008 without bankruptcy despite being assembled through multiple acquisitions.

 

 

Acquiring ProBuild has several advantages for BLDR. First, ProBuild gives BLDR a nationwide footprint. Before the deal, the company generated 85% of its sales in Texas and the coastal southern states. After the deal, Texas and the South will be just 52% of sales. Second, the companies have significant cost-saving opportunities together. BLDR is paying 9.6X 2014 EBITDA, but just 6.1X EBITDA after $110 million of cost savings. Put another way, the $1.63b purchase price is less than 15x times the synergies that the combined company will generate. Third, beyond the cost synergies, there are revenue opportunities. As alluded to earlier, BLDR generates 53% of sales from value-added products, vs 32% for ProBuild. BLDR should be able to drive higher penetration of value-added products over time in their new geographies. Finally, the new BLDR will be the largest company in its industry, according to the ProSales 100 ranking.

 

http://www.prosalesmagazine.com/benchmarks/prosales-100-survey/2015-prosales-100-list_o

 

Integrating the two businesses will take time and there will be challenges. Already, the senior notes were priced above 10%, vs. management expectation of 8.5% at the time the deal was announced. Additionally, the $110 million of cost synergies will take two years to fully implement, and will cost $100 million in one-time expenses to realize. In the simple earnings model presented below, I have modeled in a slow build on the deal’s synergies, which is reflected in the Adjusted EBITDA margin. BLDR reports that the pro forma company would have earned 6.2% Adjusted EBITDA margins in 2014 with all the synergies realized, but I don’t forecast an EBITDA margin that high until 2017. Further assumptions include only 10% revenue growth through 2020 and EBITDA margins below the 2006 peak through 2019, despite the fact that the combined company will be much larger than BLDR in 2006. Should single family housing starts grow at a rate faster than the 10% modeled here, the growth trajectory could be even more attractive.



 

2014A

2015E

2016E

2017E

2018E

2019E

2020E

               

Sales

6090

6600

7260

7986

8785

9663

10629

Adjusted EBITDA

266

286

425

550

700

880

1050

Adj. EBITDA margin

4.37%

4.33%

5.85%

6.89%

7.97%

9.11%

9.88%

               

Capex (2% of sales)

 

132

145

160

176

193

213

Adj EBITDA - capex

 

120

280

390

524

687

837

Interest expense

 

85

155

145

125

100

70

               

Pretax profit

 

35

125

245

399

587

767

Taxes (35%)

 

12

44

86

140

205

269

Net income

 

23

81

159

260

381

499

Shares

110

112

115

120

120

120

120

EPS

 

0.20

0.71

1.33

2.16

3.18

4.16

 

Enterprise value



 

Amount

Rate

Maturity

Senior Unsecured Notes

$700

10.75%

2023

Senior Secured Notes

$350

7.63%

2021

ABL draw

$295

variable

2020

Term Loan B

$600

variable

2022

       

Lease obligations

$300

   

Cash

$158

   

Net Debt

$2,087

   
       

Shares

110

   

Stock Price

$15.32

   

Market cap

$1,685

   
       

Enterprise value

$3,772

   

 

 

Target Valuation and Returns

 

In a capital structure this levered, any valuation model will be acutely sensitive to assumptions about revenue growth, margin growth, and debt paydown. Rather than get too precise and thereby bogged down in the details, below I present a snapshot of the valuation matrix at YE 2018, roughly three years from now. I assume that net debt has been reduced by that point by approximately $600 million, which is less than half the cumulative EBITDA-capex I expect over that period. The column shaded in grey represents my best guess for the appropriate valuation range. As further years go by and debt is paid down, the equity value will become less sensitive to the EBITDA multiple.

 

BLDR 2018 valuation (assumes net debt of $1.5B)

Adjusted EBITDA

$600

$650

$700

$750

$800

Multiple

         

7

$22.50

$25.42

$28.33

$31.25

$34.17

8

$27.50

$30.83

$34.17

$37.50

$40.83

9

$32.50

$36.25

$40.00

$43.75

$47.50

10

$37.50

$41.67

$45.83

$50.00

$54.17

 

Risks

 

Obviously, the only risk that matters at BLDR is the extreme leverage. The company is now levered at 7.3X my 2015 pro forma EBITDA. However, this number will come down fast. The integration costs are front-end loaded, and the company claims they can achieve over 70% of the total $110 million in synergies within one year. If that’s the case, and assuming the sales growth in the model above, leverage will fall below 5.0X by the end of 2016. That’s without assuming any cash build or debt payback, either of which will add modestly to the reductions. By the end of 2017, leverage will be considerably below the leverage at standalone BLDR before the announcement of the ProBuild deal.

 

The term structure of the debt gives BLDR plenty of time execute, with no major maturities until after 2020.

 

Housing starts must continue to increase for the next year or two to allow BLDR time to delever; if they stall or start to decline, this company is in trouble. Dozens of reports, white papers and studies are written weekly about the trajectory of future housing starts, so I won’t add to the collection. You can find your own forecasts and make your own judgments. Naturally, I’m a bull on housing, or I wouldn’t own this stock.

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

With the deal now closed, the major catalyst will be the achievement of the cost synergies during the rest of 2015 and early 2016, as well as continued growth in new housing starts.

    sort by    

    Description

    Builders FirstSource

     

    Builders FirstSource is a leading supplier and manufacturer of structural building products for home builders. This summer, BLDR acquired ProBuild Holdings, a much larger competitive company that operates lumber yards, gypsum centers and other distribution facilities serving the residential construction market. The deal, which closed a month ago, creates the number one player by market share in the industry. With debt:EBITDA above 5X, BLDR is a highly asymmetrical wager on the continued growth of new construction in the United States. If the management team is successful, the stock has the potential to appreciate to multiples of the current price. Thankfully, this management team has led the company through two downturns before and through much more difficult credit conditions.

     

    Company Background

     

    BLDR was formed in 1998 when JLL Partners, a middle market PE firm, partnered with Floyd Sherman, the current CEO of BLDR, to acquire companies in the building products space. The company completed 24 acquisitions through 2001, then went public in 2005. In 2006, JLL sold half their interest in the company to Warburg Pincus. While JLL is no longer a material shareholder, Warburg Pincus retains ownership of 19% of BLDR pro forma for the recent secondary offering.

     

    BLDR generated negative cash flow throughout the housing downturn and the years after. The company survived thanks to its low leverage at the time (less than 2X 2006 and 2007 EBITDA), cash generated by working capital reductions, retroactive tax refunds received in 2010, and opportunistic debt issuances in 2008 and 2011. While their stock was down over 90% during the period, BLDR performed far better than their close peers Stock Building Supply and BMC Select, which both went bankrupt during the downturn. BLDR subsequently returned to EBITDA positive in 2012. Since then, the company has been deleveraging through earnings growth, while also resuming tuck-in acquisitions.

     

    Early in its history, BLDR pioneered a business model now core to its value proposition. Rather than simply supplying lumber for construction sites (this does remain a low margin product line for BLDR), the company developed the prefabricated millwork and component business. In this model, BLDR assembles wall units, staircases, door assemblies, roof trusses and other products at their factories. The customer gets reduced labor costs due to the automation of a factory, just in time delivery, and faster completion times. BLDR gets margins associated with value-added manufacturing, not simple distribution, and a competitive advantage against other suppliers who cannot match the level of expertise and logistics necessary to offer this service. The comparison to ProBuild is instructive — despite being three times larger than BLDR, ProBuild derives only 32% of revenue from value-added products, vs. 53% at BLDR.

     

    It should be noted that home builders across the country report that the shortage of skilled tradesmen is the biggest problem facing their business. The prefabricated products offered by BLDR are a great solution to this problem and should continue to gain share over time.

     

    ProBuild Acquisition

     

    Announced in April, this deal is the first strategic acquisition for BLDR, which in the past had growth through multiple tuck-in deals in addition to end market growth and share gains. Like BLDR, ProBuild was owned by a PE firm, in this case Devonshire Investors, a firm affiliated with Fidelity. Also like BLDR, ProBuild survived 2008 without bankruptcy despite being assembled through multiple acquisitions.

     

     

    Acquiring ProBuild has several advantages for BLDR. First, ProBuild gives BLDR a nationwide footprint. Before the deal, the company generated 85% of its sales in Texas and the coastal southern states. After the deal, Texas and the South will be just 52% of sales. Second, the companies have significant cost-saving opportunities together. BLDR is paying 9.6X 2014 EBITDA, but just 6.1X EBITDA after $110 million of cost savings. Put another way, the $1.63b purchase price is less than 15x times the synergies that the combined company will generate. Third, beyond the cost synergies, there are revenue opportunities. As alluded to earlier, BLDR generates 53% of sales from value-added products, vs 32% for ProBuild. BLDR should be able to drive higher penetration of value-added products over time in their new geographies. Finally, the new BLDR will be the largest company in its industry, according to the ProSales 100 ranking.

     

    http://www.prosalesmagazine.com/benchmarks/prosales-100-survey/2015-prosales-100-list_o

     

    Integrating the two businesses will take time and there will be challenges. Already, the senior notes were priced above 10%, vs. management expectation of 8.5% at the time the deal was announced. Additionally, the $110 million of cost synergies will take two years to fully implement, and will cost $100 million in one-time expenses to realize. In the simple earnings model presented below, I have modeled in a slow build on the deal’s synergies, which is reflected in the Adjusted EBITDA margin. BLDR reports that the pro forma company would have earned 6.2% Adjusted EBITDA margins in 2014 with all the synergies realized, but I don’t forecast an EBITDA margin that high until 2017. Further assumptions include only 10% revenue growth through 2020 and EBITDA margins below the 2006 peak through 2019, despite the fact that the combined company will be much larger than BLDR in 2006. Should single family housing starts grow at a rate faster than the 10% modeled here, the growth trajectory could be even more attractive.



     

    2014A

    2015E

    2016E

    2017E

    2018E

    2019E

    2020E

                   

    Sales

    6090

    6600

    7260

    7986

    8785

    9663

    10629

    Adjusted EBITDA

    266

    286

    425

    550

    700

    880

    1050

    Adj. EBITDA margin

    4.37%

    4.33%

    5.85%

    6.89%

    7.97%

    9.11%

    9.88%

                   

    Capex (2% of sales)

     

    132

    145

    160

    176

    193

    213

    Adj EBITDA - capex

     

    120

    280

    390

    524

    687

    837

    Interest expense

     

    85

    155

    145

    125

    100

    70

                   

    Pretax profit

     

    35

    125

    245

    399

    587

    767

    Taxes (35%)

     

    12

    44

    86

    140

    205

    269

    Net income

     

    23

    81

    159

    260

    381

    499

    Shares

    110

    112

    115

    120

    120

    120

    120

    EPS

     

    0.20

    0.71

    1.33

    2.16

    3.18

    4.16

     

    Enterprise value



     

    Amount

    Rate

    Maturity

    Senior Unsecured Notes

    $700

    10.75%

    2023

    Senior Secured Notes

    $350

    7.63%

    2021

    ABL draw

    $295

    variable

    2020

    Term Loan B

    $600

    variable

    2022

           

    Lease obligations

    $300

       

    Cash

    $158

       

    Net Debt

    $2,087

       
           

    Shares

    110

       

    Stock Price

    $15.32

       

    Market cap

    $1,685

       
           

    Enterprise value

    $3,772

       

     

     

    Target Valuation and Returns

     

    In a capital structure this levered, any valuation model will be acutely sensitive to assumptions about revenue growth, margin growth, and debt paydown. Rather than get too precise and thereby bogged down in the details, below I present a snapshot of the valuation matrix at YE 2018, roughly three years from now. I assume that net debt has been reduced by that point by approximately $600 million, which is less than half the cumulative EBITDA-capex I expect over that period. The column shaded in grey represents my best guess for the appropriate valuation range. As further years go by and debt is paid down, the equity value will become less sensitive to the EBITDA multiple.

     

    BLDR 2018 valuation (assumes net debt of $1.5B)

    Adjusted EBITDA

    $600

    $650

    $700

    $750

    $800

    Multiple

             

    7

    $22.50

    $25.42

    $28.33

    $31.25

    $34.17

    8

    $27.50

    $30.83

    $34.17

    $37.50

    $40.83

    9

    $32.50

    $36.25

    $40.00

    $43.75

    $47.50

    10

    $37.50

    $41.67

    $45.83

    $50.00

    $54.17

     

    Risks

     

    Obviously, the only risk that matters at BLDR is the extreme leverage. The company is now levered at 7.3X my 2015 pro forma EBITDA. However, this number will come down fast. The integration costs are front-end loaded, and the company claims they can achieve over 70% of the total $110 million in synergies within one year. If that’s the case, and assuming the sales growth in the model above, leverage will fall below 5.0X by the end of 2016. That’s without assuming any cash build or debt payback, either of which will add modestly to the reductions. By the end of 2017, leverage will be considerably below the leverage at standalone BLDR before the announcement of the ProBuild deal.

     

    The term structure of the debt gives BLDR plenty of time execute, with no major maturities until after 2020.

     

    Housing starts must continue to increase for the next year or two to allow BLDR time to delever; if they stall or start to decline, this company is in trouble. Dozens of reports, white papers and studies are written weekly about the trajectory of future housing starts, so I won’t add to the collection. You can find your own forecasts and make your own judgments. Naturally, I’m a bull on housing, or I wouldn’t own this stock.

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    With the deal now closed, the major catalyst will be the achievement of the cost synergies during the rest of 2015 and early 2016, as well as continued growth in new housing starts.

    Messages


    Subjectvariant perception
    Entry09/04/2015 10:42 AM
    MemberJohnKimble

    Thank you for the idea. This is clearly a higher risk/reward situation, but why do you think it is mis-priced? Is it simply that the combined earnings power is underestimated? Or is this just a levered way to express your view on housing? 


    SubjectRe: variant perception
    Entry09/04/2015 03:15 PM
    Memberringo962

    JohnKimble,

    I figured I was going to get this question since I was posting a rec for a stock at an eight-year high. There are a few ways I look at it. 

    First, I think it's normal for someone who may be new to the story to question the leverage and the company's ability to handle it. I've followed this company since 2006, back when it was first posted to VIC, and I first bought the stock in 2013. For quite a while in 2009-2011, the company generated negative EBITDA, yet managed to survive as I alluded to briefly in the writeup. A temporary spike in leverage to over 5x would be stress inducing for other companies, but not that bad for BLDR. So I think my first variant perception is that while the leverage levels look bad, it's not that bad for this company and this management team. This ain't their first rodeo.

    Second, I thnk that in the long run, BLDR will easily exceed last cycle's peak margins. They are consolidating a very fragmented industry, and the value proposition of their factory-built components is more important than ever in today's labor-short construction market. I've tried not to make assumptions about these margins that are too wild, which is why I've got a margin build more conservative than management has presented, and with a long horizon before BLDR surpasses 2006 margins again.

    Third, and something I didn't touch on in the main body of the writeup, but I think it's easy to naively look at the insiders who are selling and get a little scared. But their incentives matter. Stadium Capital, which sold into the April pop around the ProBuild deal news, has been in this stock for years. As best I can tell, their cost basis is under $4. At one point they owned at least 15 million shares. So they are trimming a big winner for them and that's natural. We all do that. Warburg Pincus, which sold into last month's secondary, is the opposite. Their shares go back to 2006 and they had a cost basis then of $25. The fund that owns BLDR is nearing the end of its life and the capital must be returned. So between them BLDR needs to find new holders for over 10% of the float. Many of the investors who bought from them in the last year were expecting a steady glide path to lower leverage, so the ProBuild acquisition wasn't exactly in their models.

    Finally, it'll be a year or two before the benefits of this deal start to show up in attractive EPS growth numbers. I once promised to donate $20 to my least favorite charity if I ever use the phrase "time arb----ge" so I'm going to try hard not to do that here. But you get the idea. For the next four to six quarters, there's going to be a lot of noise between the Adjusted EBITDA line on the earnings releases and the GAAP EPS as the company works through the integration of ProBuild. And leverage will look a little high for investors who haven't seen what this team and company accomplished in the past. But it will look great once we get throught that phase.

    Hope that helps.


    SubjectRe: Re: variant perception
    Entry09/04/2015 03:44 PM
    MemberJohnKimble

    Thank you... that does help. I could see how the leverage and the chart might scare people away from a good story. 


    SubjectQuestions
    Entry09/25/2015 05:35 PM
    Memberblaueskobalt

    Hi Ringo,

    Thanks for the idea.  Can you talk about their size relative to peers, homebuilders, and manufacturers?  What is their customer breakdown between custom builders and national homebuilders?

    My understanding is that the large homebuilders are getting smarter about purchasing; this combined with homebuilder consolidation is a headwind for the distributors, though a focus on prefab/value-add should help to resist the trend...

    Also, why BLDR over IBP and BLD, which are better positioned for this trend?


    SubjectRe: Questions
    Entry09/26/2015 01:31 AM
    Memberringo962

    Responding to your questions blaueskobalt...

     

    1. Size. Relative to other distributors, the new BLDR (combined with ProBuild) will easily be the largest company in the industry. Only the top 14 companies (well, 13 now that ProBuild is a part of BLDR) generate more than $500 million in annual sales. Below them is a long tail. This link shows the structure well. 

     

    http://www.prosalesmagazine.com/benchmarks/prosales-100-survey/2015-prosales-100-list_o

    When it comes to size relative to customers and the breakdown between custom and national, in the last 10k the company says that 25.1% of 2014 sales were to their top ten customers. The largest customer was 8% of sales. The company lists Beazer, DR Horton, Hovnanian, Standard Pacific, and Ryland as top customers.

    Despite being larger, ProBuild is more diversified among its customers. Top ten concentration is only 12% (see the S-3 filed around the time of the deal). So the newly combined company will have top ten customer concentration somewhere around 15%, with the exact number dependent on the degree of overlap.

    When it comes to manufacturers, there are dozens and dozens of companies supplying hundreds of categories and tens of thousands of SKUs. I follow distributors in every industry, and while value chains have become more consolidated on both sides of the bow tie, distributors continue to earn good returns on capital. For customers who value speed and low working capital, and suppliers who need access to a broad base of customers, distributors are essential.

    To give you a data point to show how broad the supplier base is, consider PGT. Floyd Sherman of BLDR serves on the board there, so the company discloses related party revenue in the 10K. In 2014, BLDR purchased $6.3 million of windows from PGT. BLDR's total window & door sales were $356 million in 2014, and total revenue was $1.6 billion. Even allowing for the niche market of PGT's impact windows, and the fact that some suppliers probably sell more than 10X PGT's volume to BLDR, it should be clear that BLDR occupies a strong position in the value chain. 

    More importantly, the nature of some of BLDR's products make it hard for suppliers to have power. The company made $330 million last year on prefabricated components and $160 million on millwork. The suppliers in question there are basically lumber companies. it would be quite the change in strategy for them to move into manufacturing of value-added products, and it's unclear what they might gain from such an attempt. If they were to do so, I would think a company in the long tail of distributors would have more to lose than the #1 company by market share, as BLDR now is.

     

    2. Why BLDR over IBP or BLD? Versus IBP, that's pretty easy. They're a one trick pony, with insulation driving 80% of their revenue. They're a decent business and there's a price at which I'm a buyer, but it's above that right now. Regarding BLD, when I submitted this writeup I hadn't noticed that the spinoff had occurred yet; I only noticed about a week later when I was doing my periodic review of MAS. I agree that BLD is a good company but since it's new on my radar, I don't have a strong view on valuation at the moment. It's not at all apparent to me that they are better positioned for the direction of the new home construction market as you say, so I'd be interested to hear your perspective as to why you think that's so.

     


    SubjectRe: Time to take a look again
    Entry05/10/2016 10:20 PM
    MemberMiamiJoe78

    Ringo  - what is the risk that HD, LOW or even AMNZ compete with BLDR on prefabricated building parts?


    SubjectRe: Re: Time to take a look again
    Entry05/10/2016 11:41 PM
    Memberringo962

    I think the risk of HD and LOW entering this market is negligible. They would be competing directly with their contractor customers if they did so, and they would risk their brand equity in so doing. HD, in particular, tried a decade ago to get into industrial distribution for utilities, facilities, maintenance, and large scale construction. That business was later spun off to PE buyers and became HD Supply, now publicly traded. While BLDR and HDS do not compete directly, the fact that HD tried to enter another market only to retreat and focus on their core business speaks to their intent.

    Finally, pre-fab entails a manufacturing operation. HD and LOW are retailers, not manufacturers. It would take a lot of time and money to succeed.

    Amazon can and will compete with anyone, so I never write them off. That said, BLDR does a few billion dollars in sales a year. AMZN does $100B+. They probably have bigger fish to fry.


    SubjectRe: Time to take a look again
    Entry05/11/2016 05:30 PM
    Memberstraw1023

    ringo,

     

    agreed. Surprised did not rally on Q1 numbers.

     

    Where do you have 2016 EBITDA, pro-forma for full cost cutting? The LTM EBITDA, pro-forma for full cost cutting is $437mm (less $8mm stock comp).

     

    Thanks 


    SubjectRe: Re: Time to take a look again
    Entry05/12/2016 01:32 PM
    Memberringo962

    Pro forma for full cost cutting as you say, I show slightly below $500mm this year. I agree that the market seems to be missing something after that excellent quarterly report.


    SubjectRe: Re: Re: Time to take a look again
    Entry05/19/2016 09:29 PM
    MemberMiamiJoe78

    Ringo - given that you wrote this up 9 months ago - I differ a bit from your forecasted EPS for the outyears - I pasted my projections below and they are lower than your estimates from Sep  (although still attractive).  I'm curious if you have changed any of your projections.  

    In my estimates for FCF I do not include the restructuring costs in 2016/2017 ( ~ $30mm & $22mm respectively) and I assume a 16% tax rate in 2016 that increases every year until 35% by 2019.  
     
    I was curious if you had tried to calcuate gross margins by operting business (lumber ~ 18% while pre-fab manufactured at ~ 28%).  I also was curious if in your conversations with homebuilders you had confirmed whether builders are using distributors as a larger part of their oustsourced construction and consulting (best practices) services.  In my research I have found the national builders use them solely for distribution and pre-fab while smaller builders use them for installation and consulting (where they get paid through the builder utilizing more value added services).
     
    Thanks again for the idea.
     
    Financial Dashboard - BLDR                
    Trading Statistics         Base Case Financials   12.31.16 12.31.17 12.31.18
    Share Price ($) $11.44       Revenue   6,558.7 7,017.8 7,368.7
    Shares Outstanding                     112.60       Growth YoY   8.1% 7% 5%
    Warrant Exchange                            -         Gross Margin   $1,680.3 $1,824.6 $1,952.7
    Market Cap $839.26       as a % of sales   25.6% 26.0% 26.5%
    Cash $3.73       SG&A   $1,393.7 $1,456.2 $1,473.7
    Debt $1,969.70       as a % of sales   21.3% 20.8% 20.0%
    Minority Interest $0.00       Operating Income   $286.6 $368.4 $479.0
    Enterprise Value $2,805.23       as a % of sales   4.4% 5.3% 6.5%
              Ebitda   $424.7 $498.4 $609.0
    VALUATION Base Upside Downside   Growth YoY   35.6% 17.4% 22.2%
    FCF/Share 2017 $1.33 $1.50 $1.00   as a % of sales   6.5% 7.1% 8.3%
    Multiple 11.0x 13.0x 9.0x   Incremental Sales   $491.9 $459.1 $350.9
    Share Price $14.63 $19.50 $9.00   Incremental Ebitda   $111.4 $73.7 $110.5
    Current Share Price $11.44 $11.44 $11.44   Incremental Ebitda Margin   22.6% 16.1% 31.5%
    Premium/(Discount) 27.9% 70.5% -21.3%   Interest Expense   -$157.0 -$150.0 -$137.0
              Cash Taxes   -$21.1 -$50.2 -$102.6
      12.31.16 12.31.17 12.31.18   Change in Working Capital   -$30.00 -$43.62 -$33.33
    EPS $0.96 $1.48 $2.11   Cap Ex   -$98.38 -$105.27 -$110.53
    PE 11.9x 7.7x 5.4x   FCF   $118.24 $149.31 $225.51
              as a % of Ebitda   27.8% 30.0% 37.0%
    Outstanding Debt $1,969.7 $1,887.2 $1,759.8   FCF/Share   $1.05 $1.33 $2.00
    Ebitda $424.7 $498.4 $609.0   Growth YoY   NM 26.3% 51.0%
    Debt/Ebitda 4.6x 3.8x 2.9x   FCF Yield   9.2% 11.6% 17.5%
              P/FCF   10.9x 8.6x 5.7x
                       
     
     

    SubjectAny update?
    Entry10/31/2016 06:43 PM
    Memberxds68

     

    Stock seems to continue to trail off - has anything changed? Would appear to be substantial upside at this point if they are executing and housing market doesn't collapse.

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