Stifel: We're Upgrading Builders FirstSource To Buy

In a report published Tuesday, analysts at Stifel upgrade their rating on

from Hold to Buy, following the company's announcement that it intends to acquire ProBuild Holdings, Inc. The price target is set to $20. Despite the surge in the share price on Monday, the analysts believe that the acquisition of the largest building products distributor in the world should drive Builders FirstSource's combined EBITDA estimate up to $500 million for 2017, from the current $120 million. If housing construction activity continues to grow and significant cost savings are achieved, the acquisition could prove to be significantly positive for Builders FirstSource. "The deal is valued at $1.63 billion, $1.8 billion including lease obligations and less tax adjustments… It is proposed that the transaction will be done using mostly cash, funded mostly by new debt. Only $100 million of new equity will be issued," the analysts added.