Buy Beacon Roofing For Accelerating Earnings, M&A Opportunities

Beacon Roofing Supply, Inc.BECNacquisition of Allied Building Products Corp. from its parent company CRH PLC (ADR) CRH prompted some of Wall Street's top analysts to reinforce their bullish outlook.

Jefferies: Re-Acceleration Of Earnings

Beacon Roofing has a great track record of M&A deals and the recent acquisition of Allied Building won't be any different, Jefferies' Philip Ng commented in a research report. Once fully integrated, Allied Building is expected to contribute an earnings per share of $1.25, which represents a 48 percent increase for Beacon Roofing. Also, the guided figure of $110 million in synergies appears to be conservative as it doesn't factor in savings by leveraging the increased scale.

The acquisition will not only nearly double Beacon Roofing's size but will solidify its presence in the roofing market and also gives the company access to interior products, which will help reduce any weather-related volatility.

The acquisition is also expected to boost Beacon Roofing's margins toward the high end of the company's own expectations over the coming years, Ng continued.

"While shares have sold off recently over concerns on its commercial business, it has created an attractive entry point and BECN is now better positioned with its increased scale from Allied, and comps are fairly easy in 2018," Ng concluded.

Ng upgraded Beacon Roofing's stock rating from Hold to Buy with a price target boosted from $50 to $54.

KeyBanc: Plenty Of Reasons To Be Bullish

KeyBanc's Kenneth Zener upgraded Beacon Roofing's stock rating from Hold to Overweight with a $52 price target due to the Allied Building acquisition as it will support both earnings upside and multiple expansion.

Beacon Roofing's 2015 acquisition of Roofing Supply Group was "important" but the acquisition of Allied Building is "significant" and comes at a time when Beacon Roofing's market share in the roofing segment stands at 20 percent, which is up from 16 percent, Zener commented. The acquisition now gives Beacon Roofing a new growth platform in wallboard and ceiling tiles.

"A deal like Allied puts the bigger picture in perspective, as BECN acquires another one of the bigger remaining competitors and puts its RSG success to work again," Zener wrote.

Overall, the acquisition will give Beacon Roofing higher sales, improved margins, and perhaps most important, leverage.

At time of publication, shares of Beacon Roofing were up 6.78 percent at $46.49.

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