Market Overview

Beacon Roofing Supply: Another Way To Play The Housing Boom, When It Happens

Beacon Roofing Supply: Another Way To Play The Housing Boom


Price:$22.15

Forward P/E:14

Earnings Growth:55%

Projected Sales Growth:8.4%

Market Cap:$1.02 billion

Why It's Featured: Solid growth in a tough economy; ever expanding.
Danger Zones: Depends on weather (the worse the better) and the housing market in general.

Beacon Roofing Supply, Inc. (BECN-NASDAQ) distributes residential and non-residential roofing materials.  It's residential roofing products include asphalt shingles, synthetic slates and tiles, clay and concrete tiles, slates, nail base insulation, metal roofing, felt, wood shingles and shakes, nails and fasteners, metal edgings and flashings, prefabricated flashings, ridges and soffit vents, gutters and downspouts, and other accessories.

Non-residential roofing products are single-ply roofing; asphalt; metal; modified bitumen; built-up roofing; cements and coatings; insulation flat stock and tapered; commercial fasteners; metal edges and flashings; skylights, smoke vents, and roof hatches; and sheet metal products, including copper, aluminum, and steel.

The company also provides complementary building products, such as vinyl siding; red, white, and yellow cedar siding; fiber cement siding; soffits; house wraps; vapor barriers; and stone veneer, as well as vinyl windows, aluminum windows, wood windows, turn-key windows, and wood and patio doors.

In addition, it offers specialty lumber products comprising redwood, red cedar decking, mahogany decking, pressure treated lumber, fire treated plywood, synthetic decking, PVC trim boards, millwork, and custom millwork. Further, the company provides waterproofing systems, building insulations, air barrier systems, gypsum, moldings, cultured stone, and patio covers.

Customers are contractors, home builders, building owners, and other resellers.  Beacon Roofing Supply, Inc. distributes through 194 branches in 38 states of the United States; and 6 Canadian provinces.  The company was founded in 1928 and is based in Peabody, Massachusetts.

The remarkable attribute for BECN is that earnings took off last year (fiscal year ends in September), in spite of the worst housing debacle since the depression.  Earnings per share (EPS) finished at $1.16, fully 55% ahead of 2010's final tally of 75 cents.  For any company to grow in this economic environment is noteworthy.  The fact that this company did it in one of the hardest hit industries makes it more so.

Earnings this year should be $1.36 according to consensus from 12 analysts.  The range among them is $1.28 to $1.52.  They see next year at $1.58 (the range is $1.41 to $1.90).  For the December 2011 quarter, estimates are for 29 cents compared to 22 cents last year in the first period.  Earnings will be announced on February 9.

The fourth quarter illustrated the strength in revenues and profits.  Sales were up 20% from the highs set last year in the fourth while net profits rose by 70%.  Residential and non-residential revenues were up 26% and 10% respectively.  Expect that trend to continue into this year.  Some of the increase came from price hikes that stuck.  Expenses were cut.  The company built up inventory before the price hikes, initiated the hikes, and watched margins grow.  That will be hard to duplicate, but it saved on costs early in next year's first half by increasing cash flow and building inventories.

Beacon's buying.  In the final period, it added The Roofing Connection, a one-branch company in Nova Scotia, and Fowler & Peth, a Colorado distributor of residential and commercial roofing, stone, composite decking, insulation, waterproofing and specialty building products.  The first will extend Beacon's footprint from Quebec to the Atlantic Ocean.  The second will strengthen its presence in the Rocky Mountain region and help its westward movement.  The area is known for tough winters as well as turbulent springs and falls, all conducive to more roofing needs.  Expect more acquisitions as the company continually looks to extend its market presence.  Management has earmarked $80 million for more purchases this year.  Forecasts are for new housing starts to stabilize in 2012.  This segment makes up 50% of BECN's roofing revenues.

- Essential Numbers:
- Price to sales ratio: .55
- Price to book: 1.87
- Operating margin: 5.71%
- Profit margin: 3.26%
- Return on equity: 11.76%
- Return on assets: 5.90%
- Revenues for the last 12 months: $1.82 billion
- Cash: $143.03 million
- Cash per share: $3.10
- Total debt: $334.35 million
- Total debt/equity: 62.10%
- Current rato: 2.53
- Book value per share: $11.67
- Beta: 1.32
- 52 week change: 20.03%
- Shares Outstanding: 46.16 million
- Float: 42.47 million
- Held by insiders: 1.16%
- Held by Institutions (percent of Float): 106%
- There is no dividend.

BECN is still small.  But it's growing, in all the right ways.  Internal growth is positive, and the add-ons don't seem to hurt earnings.  While last year showed a strong growth in the bottom line, expectations are for earnings to grow on average about 17.5% annually.  That compares to 12.01% for the last 5 years.  That growth rate is still notable in a market where many stocks are trying to find any growth at all. (For some stocks that have made solid earnings, see our website: www.theonlineinvestor.com)

- Company Web site: www.beaconroofingsupply.com

- Ted Allrich
January 12, 2012

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Ted Allrich is Chairman of the Board of BofI Holdings Inc. and Bank of Internet USA. He is also the Founder of The Online Investor (www.theonlineinvestor.com), a site that offers investment ideas and in

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