Roofing Industry Shows 'Much Better Discipline,' Jefferies Says

In a report published Wednesday, Jefferies analysts maintained a Buy rating on

, with a price target of $51, after signs of better discipline in the roofing industry emerged. TAMKO, the 4th largest roofing manufacturer, announced a 7 percent increase in price for residential and commercial roofing products for July 1, owing to increased oil and transportation costs. "TAMKO historically has been more aggressive on pricing than the market leaders (GAF, OC, and CertainTeed). With chatter of the May price (5 - 7%) increase pushed out, this latest data point at least suggests the market is showing better discipline than last year and prices should hold steady," the analysts mentioned. Future demand for roofing products will determine whether distributors will be able to maintain the price hike. "As long as pricing holds steady, stock should work," the analysts stated. "Beacon (2nd largest roofing distributor) noted on its recent call, demand has accelerated in April (+5%) and its customer's backlogs suggest 6 - 9% organic growth this year," the analysts pointed out. This compares with the "flattish volumes" guidance provided by Owens Corning. In the report Jefferies noted, "With the PPI data suggesting asphalt prices are down 28% YOY in April, we continue to believe the $50 mil asphalt cost tailwind guidance is conservative, which we believe implies it's down ~15% YOY. While any incremental lift on pricing would be a nice tailwind, the stock should work as long as shingle prices hold steady, noting every 10% decline in asphalt price translates to an incremental 18% lift to EPS."