Beacon Roofing Supply Shares Spike Following RSG Acquisition Announcement & Raymond James Upgrade

Shares of Beacon Roofing Supply, Inc. BECN rose more than 10 percent on Monday's trading, following an upgrade by research firm Raymond James. Analysts Sam Darkatsh, Budd Bugatch and Joshua Wilson boosted their rating on the stock from Market Perform to Outperform after the company announced its “profoundly attractive” acquisition of Roofing Supply Group (RSG), a top-five national roofing distributor, for $1.1 billion in cash and stock.

Related Link: Beacon Roofing Supply to Acquire Roofing Supply Group from Clayton, Dubilier & Rice for $1.1B in Cash and Stock

The deal is expected to be completed by October 1, right after the end of Beacon’s quarter. Following the transaction, Clayton Dubilier & Rice, the previous owner of RSG, will own about 15 percent of Beacon’s outstanding stock and will have two seats on its Board of Directors.

The experts note that, while they continue to be concerned about current industry pricing trends, they see the RSG acquisition as compelling from a financial standpoint. Moreover, they think consolidation will likely help industry pricing over the longer term. Finally, they note that further financial disclosure by Beacon in the upcoming months could act as a catalyst for the stock.

Raymond James estimates EPS accretion could reach $0.15-$0.40 in fiscal 2016. However, the firm is not changing its estimates yet, as the transaction has not been closed yet. They currently model earnings of $1.36 per share for fiscal 2015, EPS of $1.67 for 2016, and EPS of $1.90 for 2017 – on respective sales of $2.549 billion, $2.718 billion and $2.845 billion.