Why Builders FirstSource (BLDR) Stock Hit a Five-Year High Today

NEW YORK (TheStreet) -- Deutsche Bank upgraded Builders FirstSource  (BLDR) to "buy" from "hold" and increased its target price to $12 from $5. The firm cited growth in the Southeastern U.S. markets and expectations for more favorable industry pricing dynamics.

"Builders FirstSource is one of the most highly exposed public companies to US new residential construction," the firm wrote in a research note. "The firm's operations are primarily in the South/Southeastern US, where volumes have grown significantly since the dark days of the housing bust.

"Growth should continue in these markets and BFS is likely to see the added benefit of an industry that is moving towards more rational pricing, which is the next leg of the cycle for BFS. Cost take-outs in the downturn mean that EBITDA margins should return to close to peak levels in 2015 and higher thereafter."

The stock hit a five-year high of $9.10 as of 2:10 p.m. on Monday.

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Separately, TheStreet Ratings team rates BUILDERS FIRSTSOURCE as a "hold" with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate BUILDERS FIRSTSOURCE (BLDR) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, generally higher debt management risk and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 28.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 141.66% and other important driving factors, this stock has surged by 35.31% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The debt-to-equity ratio is very high at 23.03 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, BLDR has managed to keep a strong quick ratio of 1.56, which demonstrates the ability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Building Products industry and the overall market, BUILDERS FIRSTSOURCE's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: BLDR Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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