NEW YORK (TheStreet) -- Shares of Builders FirstSource (BLDR - Get Report) were gaining 59% to $10.97 on heavy trading volume Monday after the building materials company announced it will acquire privately-held lumber supplier ProBuild.

Builders FirstSource will pay $1.63 billion in cash to acquire ProBuild. The acquisition is expected to close sometime in the second half of 2015.

Builders FirstSource said it expects the acquisition to be immediately accretive to its earnings. ProBuild brought in $4.5 billion in revenue in 2014.

"We are very pleased to announce this compelling combination with ProBuild to create a more diversified company with enhanced scale and an improved geographic footprint that will drive significant value for our customers and stockholders," Builders FirstSource CEO Floyd Sherman said in a statement. "As the U.S. housing market continues its recovery, we believe now is the ideal time to position Builders FirstSource for its next phase of growth and value creation."

About 5.8 million shares of Builder FirstSource were traded by 10 a.m. Monday, above the company's average trading volume of about 202,000 shares a day.

Insight from TheStreet's Research Team:

Builders FirstSource is a core holding of David Peltier's Stocks Under $10 Portfolio. During the most recent weekly roundup, this is what Dave had to say about the stock:

Builders FirstSource (BLDR; 1,500 shares; 5.74%; Inflection Point; $10.50 price target): The company distributes materials to homebuilders in the southern U.S. The stock fell fractionally this week on little news. We believe Builders FirstSource can continue to gain market share and expand margins in the coming quarters.

-David Peltier, "Stocks Under $10 Weekly Roundup," originally published 4/10/15 on$10

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 revenue growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and generally higher debt management risk."

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

  • BLDR's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 7.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • BUILDERS FIRSTSOURCE has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BUILDERS FIRSTSOURCE turned its bottom line around by earning $0.15 versus -$0.44 in the prior year. This year, the market expects an improvement in earnings ($0.36 versus $0.15).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Building Products industry. The net income has significantly decreased by 46.5% when compared to the same quarter one year ago, falling from $4.53 million to $2.42 million.
  • Although BLDR's debt-to-equity ratio of 9.55 is very high, it is currently less than that of the industry average. Along with the unfavorable debt-to-equity ratio, BLDR maintains a poor quick ratio of 0.96, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: BLDR Ratings Report
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