Storm Activity Boosts Beacon Roofing Supply's Preliminary Results: Analyst

Truist Securities analyst Keith Hughes reiterated a Hold rating on Beacon Roofing Supply, Inc. BECN with a price target of $85.

The company recently released its Q2 preliminary results, where it said it expects net sales to be around $2.5 billion and gross margins of about 25.4%. BECN expects net income to be $147 million-$154 million and EPS to be $1.88-$1.97.  

The analyst believes a lighter residential downturn and recent storm activity have helped results.

Following the preliminary result update, the analyst raised the FY23 EBITDA estimate to $856 million from $846 million and increased FY24 EBITDA estimate to $892 million from $888 million.

Management sees FY23 EBITDA in the $840 million-$870 million range (Street $839 million. 

This is the upper half of the company's original guidance range for the year, factoring in its current assessment of the current macroeconomic conditions.

The company plans to buy back outstanding shares of 400,000 of Series A Preferred stock from CD&R for $804.5 million (plus aggregate accrued and unpaid dividends as of the repurchase date), with the transaction expected to close by August 11, 2023.

The repurchase is expected to raise leverage to 2.9x, which the analyst suspects will be worked down with more debt paydown as management expects no future repurchase activity in 2023, notes the analyst.

The accretive repurchase will reduce the diluted share count by 9.69 million shares. Additionally, the company will discontinue preferred dividends in the amount of $24 million per year. 

The analyst thinks this will significantly simplify the company's capital structure as it relates to estimating diluted shares outstanding. 

Price Action: BECN shares are trading higher by 1.66% to $83.95 on the last check Monday.

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