TopBuild (BLD) Stock Up 48% in a Year: More Upside Left?


TopBuild Corp.(BLD Quick QuoteBLD ) is poised to benefit from solid demand trend, higher sales volumes, increased selling prices and improved productivity. Robust housing market prospects, strengthening Insulation business and systematic inorganic strategy also support its growth.

In the past year, shares of TopBuild have gained 47.6% over a year compared with the Zacks Building Products – Miscellaneous industry’s 35.8% growth. The price performance was backed by a solid earnings surprise history. TopBuild’s earnings surpassed the Zacks Consensus Estimate in all of the trailing 10 quarters. Earnings estimates for 2021 have moved up 3.6% in the past 30 days. This positive trend signifies analysts’ bullish sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Major Growth Drivers

Robust Results Driving Growth: TopBuild’s second-quarter fiscal 2021 results were solid, wherein earnings and revenues beat the Zacks Consensus Estimate by 10.8% and 3%, respectively. Its top and bottom lines grew 29.1% and 64.3% in the quarter, respectively, on a year-over-year basis. The uptick was backed by increased sales volume and favorable conditions in the construction market.

Gross margin for the reported quarter expanded 140 basis points (bps) to 29.2%, adjusted EBITDA was up 39.1% and adjusted EBITDA margin expanded 130 bps from the prior-year period. The company’s margins are being primarily driven by its continuous focus on managing inflationary pressure and increasing operational efficiency.

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Strategic Acquisitions: TopBuild is largely dependent on acquisitions to supplement its organic growth and expand access to additional markets and products. Going forward, the company has a robust acquisition plan that is mainly focused on the insulation business. During June 2021, TopBuild successfully completed the acquisition of RJ Insulation, which is expected to generate nearly $4 million in annual revenues. During first-quarter 2021, the company completed five acquisitions that are expected to generate $221 million in annual revenues. Over the past six years, TopBuild has acquired 19 companies that are contributing more than $800 million to its annual revenues.

Improved Housing Market: Declining mortgage rates have been driving the U.S. housing industry of late. Overall, the U.S. housing market has been riding high, defying headwinds like low inventory levels as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for TopBuild and companies like Masco (MAS Quick QuoteMAS ) , Armstrong World Industries, Inc. (AWI Quick QuoteAWI ) and Owens Corning (OC Quick QuoteOC ) , which are all in the same industry.

Superior ROE: TopBuild’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 21.8%. This compares favorably with the ROE of 10.3% of the industry it belongs to. This indicates efficiency in using its shareholders’ funds and TopBuild’s ability to generate profit with minimum capital usage.

Returns to Shareholders: TopBuild significantly rewards shareholders on a timely basis through share repurchases and tactical acquisitions. During the second quarter of 2021, the company repurchased 73,747 shares at an average price of $192.30 per share. During second-quarter 2021, TopBuild’s board of directors announced an additional share repurchase program of $200 million of its common stock. As of now, the company is committed to enhance shareholders’ value through continuous share repurchase programs. This approach has worked in favor of the company in gaining investors’ trust.

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