Builders FirstSource Is Laying the Foundation for a Rebound

Key Points

• Builders FirstSource believes in using acquisitions to expand into desirable geographies and has executed over 30 acquisitions since 2021.
• Builders FirstSource repurchased 8.9 million shares in 2024 for $1.5 billion at an average price of $170.74 per share, 19.6% higher than where shares are trading today.
• Builders FirstSource stock is trading at 11.83x forward earnings and price/sales of 1x, which is half the industry average.

Builders FirstSource Inc. NYSE: BLDR is the nation’s largest supplier of structural building products and pre-fabricated components, primarily catering to contractors, professional homebuilders and remodelers. It operates nearly 570 distribution and manufacturing centers and lumberyards across 43 states.

Unlike retail/wholesale sector giant Home Depot Inc. NYSE: HD, Builders targets professional builders, not do-it-yourselfers (DIYers). Its distribution centers are designed for bulk materials sales, delivery to job sites and custom orders. They aren't walk-in retail shopping venues like Lowe’s Companies Inc. NYSE: LOW. Builders' stock fell to 52-week lows as its Q4 earnings didn’t inspire a strong 2025. However, the company is laying the foundation for a recovery.

Laying the Foundation for Growth Through Acquisitions

Builders FirstSource has a history of acquisitions to make the company more vertically integrated and control multiple stages of the supply chain. In September 2020, it merged with a major competitor, BMC Stock Holdings, a leading supplier of building materials in the New England area. In 2022, Builders acquired National Lumber to expand their footprint in the Northeast. In 2023, Builders acquired roof and floor building materials manufacturer Trussway to bolster its manufacturing capabilities.

In January 2024, they acquired California TrussFrame, a West Coast manufacturer of floor and roof trusses and wall panels in California. In November 2024, Builders acquired Alpine Lumber Company, a leading Midwest supplier of lumber and building materials. While Builders focuses on organic growth, their strategy also entails expanding to attractive geographies through acquisition. The company has executed over 30 acquisitions since its BMC merger in 2021.

Margin Normalization Continues in Q4

Builders FirstSource posted Q4 2024 EPS of $2.31, beating $2.12 consensus estimates by 19 cents. Revenues dropped 8% year-over-year (YoY) to $3.82 billion, missing the $3.92 billion consensus estimates. The revenue drop was primarily driven by commodity deflation and lower core organic sales, which were partially offset by growth from acquisitions and one extra selling day.

Gross margins fell 300 bps to 32.3%, driven by continued single-family and multi-family margin normalization. Net income was $190.2 million or $1.65 per share compared to $2.83 per share in the year-ago period. Net margin fell 347 bps to 5%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin also decreased by 360 bps to 12.9%.

The company bought back 8.9 million shares of common stock in 2024 at an average price of $170.74 for $1.5 billion. Shares are trading 19.6% lower than there.

Builders FirstSource CEO Peter Jackson sees the glass as half full, "Our fourth quarter and full-year results demonstrate our resilience and ability to drive results in the face of a complex operating environment while maintaining our focus on building for the future. The strength of our differentiated platform and our operational excellence initiatives drove a mid-teens EBITDA margin in 2024…. Our investments today in organic growth opportunities and value-enhancing acquisitions position us to perform well in any environment.”

BLDR Stocks Completes an Inverse Cup Pattern

An inverse cup and handle pattern consists of a rounded cup formation followed by a shallow handle pullback. The cup forms when a stock bounces off a swing low to a swing high and forms a rounding top as it falls back down to retest the swing low cup lip line. The handle is created by a dead cat that bounces off the cup lip line, peaks and falls again, but then breaks through the cup lip line on the third test.

BLDR formed the inverse cup lip line at the $130.75 swing low on July 5, 2024. Shares staged a rally back up to the $201.71 Fib resistance level, forming a rounding top before turning back down. The daily anchored VWAP held a firm resistance at $166.73, rejecting bounce attempts. BLDR fell back down to retest the inverse cup lip line toward completing the cup pattern. The daily RSI has fallen to the 28-band. Fibonacci (Fib) pullback support levels are at $130.75, $122.62, $116.50 and $105.27.

BLDR stock’s average consensus price target is 43.58% higher at $196.88, and its highest analyst price target is $232.00. It has 16 analysts' Buy ratings and four Hold ratings. The stock has a 3.59% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered calls at upside Fib levels executes a wheel strategy for income.