Stephens slashes TopBuild shares target, backs Equal Weight rating
On Thursday, Stephens has adjusted its outlook on TopBuild Corp (NYSE:), reducing the price target to $400 from the previous $435 while maintaining an Equal Weight rating on the stock. The decision follows TopBuild’s second quarter performance, which saw sales and adjusted EBITDA fall short of market expectations. Despite modest volume growth and positive pricing, the company experienced margin compression, particularly in its installation segment, compared to the same quarter last year.
TopBuild, which specializes in insulation and building material services, has also revised its full-year revenue and adjusted EBITDA guidance downward. This change is attributed to an anticipated slower improvement in commercial demand, which has been affected by persistent high interest rates and ongoing supply constraints. The management team at TopBuild anticipates mid-single-digit growth in residential revenue, while projections for the commercial sector have been scaled back to low-single-digit growth.
The analyst noted that pricing growth is expected to see a slight improvement in the latter half of the year due to more effective price realization and a reduction in the negative impact from spray foam and gutter deflation. Nevertheless, the third quarter is projected to present even more challenging margin comparisons for the installation segment, potentially impacting profitability.
Despite these challenges, TopBuild’s multi-family project backlogs are reported to be robust, which should support volume through the remainder of the year. However, the company is expected to encounter significant headwinds in 2025 due to a notable decrease in multi-family housing starts observed so far this year. The updated price target of $400 reflects these factors, as Stephens continues to recommend an Equal Weight position on TopBuild shares.
In other recent news, TopBuild Corp. reported a 3.7% increase in sales to $1.37 billion in the second quarter of 2024, due to strategic pricing, increased volumes, and recent acquisitions. Adjusted EBITDA reached $277.7 million, with the residential business segment experiencing a 5.4% growth. Despite higher interest rates causing delays in commercial and industrial projects, the company maintains a strong backlog, expected to extend into 2025.
TopBuild also announced a new $1 billion share repurchase program and revised its 2024 guidance. The sales guidance for this year is now set at $5.3 to $5.5 billion, with EBITDA guidance adjusted to $1.055 billion to $1.125 billion. The company completed six acquisitions in 2024, adding over $100 million in annual revenue.
Free cash flow increased by 11.9% to $663.4 million over the past 12 months. The company repurchased 1.25 million shares for $505.2 million in the quarter, with $649.2 million still remaining under the authorization.
InvestingPro Insights
Following Stephens’ recent price target adjustment for TopBuild Corp (NYSE:BLD), the market has witnessed certain movements that are noteworthy. TopBuild’s stock price has experienced considerable volatility, with a significant decline over the last week. This could be indicative of market reactions to the company’s recent performance and guidance updates. Despite this, TopBuild’s liquid assets remain higher than its short-term obligations, suggesting a degree of financial stability.
From a valuation standpoint, TopBuild is trading at a high P/E ratio of 18.52, which is above the industry average. This could imply that the stock is priced optimistically relative to its near-term earnings growth. Additionally, the company’s Price / Book ratio as of the last twelve months stands at 4.65, further signaling a premium valuation. On a more positive note, analysts predict that TopBuild will remain profitable this year, a continuation of its profitability over the last twelve months.
Investors keeping an eye on TopBuild may find additional insights through InvestingPro, which lists several more InvestingPro Tips to consider. For those looking to delve deeper into TopBuild’s financial health and future prospects, these tips provide a comprehensive analysis, including a total of 12 additional tips available on the InvestingPro platform.
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