Beacon Roofing Down 32% in 6 Months: What's Ailing the Stock?

Beacon Roofing Supply, Inc.’s BECN shares have sharply declined in the past six months and the downtrend is likely to continue following the company’s lower-than-expected results in the third quarter of fiscal 2018. In the same time frame, the stock has declined 33.9% against the industry’s rally of 2.5%. Further, raw material price inflation and stiff competition remain major concerns for the company. Let’s delve deeper and find out what is resulting in this Zacks Rank #5 (Strong Sell) company’s downtrend.

Dismal Earnings Trend: Beacon Roofing’s earnings lagged the Zacks Consensus Estimate in four of the trailing five quarters. In the preceding four quarters, the company’s earnings missed the consensus estimate by a margin of 69.2%. Following the dismal bottom-line performance, the consensus mark for both the fourth quarter and fiscal 2018 have been sharply revised downward by 8.9% and 6.8%, respectively, indicating analysts’ pessimism surrounding the stock.

Further, Beacon Roofing lowered its adjusted EBITDA view for the fiscal from $555-$585 million to $510-$520 million. Consistent with the adjusted EBITDA reduction, the company lowered its adjusted EPS view as well. For fiscal 2018, adjusted EPS is expected in the $3.00-$3.10 range versus prior expectation within $3.35-$3.55. Notably, this revised EPS outlook reflects fiscal third-quarter shortfall.

Inflated Material Costs: Raw material prices are increasing across a wide range of key items, including asphalt, steel and gypsum, as well as for inbound flatbed rates and for outbound costs, including diesel and other delivery expenses, which are likely to hamper Beacon Roofing’s performance. Being the largest publicly-traded distributor of residential and non-residential roofing materials, the company is sensitive to asphalt prices, which are highly volatile and often linked to oil prices. Increased prices may hurt demand for these products, resulting in lower sales volumes.

Highly Competitive Industry: Beacon Roofing belongs to a highly competitive industry. The commercial roofing market has been experiencing excessive competitive pricing pressures, as many smaller local players are competing directly on pricing issues. Thus, general market softness, volatile exchange rates and uncertain weather conditions remain matters of concern.

Stocks to Consider

Some better-ranked stocks in the industry include GMS Inc. GMS, Fastenal Company FAST and Tecnoglass Inc. TGLS. While GMS sports a Zacks Rank #1 (Strong Buy), Fastenal and Tecnoglass both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GMS has an impressive long-term earnings growth rate of 7%.

Fastenal reported better-than-expected earnings in the trailing four quarters, with an average beat of 3.03%.

Tecnoglass has an impressive long-term earnings growth rate of 20%.
 

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Fastenal Company (FAST) : Free Stock Analysis Report
 
Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report
 
Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
 
GMS Inc. (GMS) : Free Stock Analysis Report
 
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