Ticker: BLDR
Market capitalization: $20.3B
Enterprise value: $24.1B
Price: $164 (as of 1/16/24)

What the Company Does

BLDR is a leading supplier of building products and services to professional homebuilders in the United States. Management has been focused on growing “value-added” products and services to builders, which means that BLDR provides labor or services that could have otherwise been done by the contractor. These bundled solutions, which now comprise just over half of all revenues, often help customers shorten build times while improving efficiency and profitability for BLDR while potentially increasing the stickiness of BLDR’s offerings.

Why We Own It

BLDR is a dominant player in a fragmented industry at a compelling valuation with ample room for growth. Management estimates a total market size of $110B for new single-family materials alone, implying that BLDR’s market share of 11% has plenty of room to take share from or acquire smaller players, potentially providing more pricing power in the future. New single-family construction comprises ~2/3rds of BLDR’s revenues, while multi-family and remodel market segments are each ~13% of revenues in even larger addressable markets. Over the past five years, BLDR has averaged a return on equity of 43.9%, implying a high-quality business.

Despite the high business quality, strong industry position and room for continued profitable growth, BLDR’s valuation implies little growth ahead at a trailing-twelve-month free cash flow yield approaching 11%. Other leading distribution companies (FAST, FERG, GWW, WSO, POOL) trade between 13x and 20x Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA), while BLDR trades at ~8.5x 2023’s EBITDA. Management is targeting a 12% Compound Annual Growth Rate (CAGR) for EBITDA over the next three years, which would imply $3.9B in 2026 EBITDA; if management hits those goals, the stock could trade north of $250 by the end of next year without any multiple expansion.1

How Management Allocates Capital

Management has four priorities: 1) Maintain a strong balance sheet with a leverage ratio between 1.0x and 2.0x EBITDA, 2) Grow organically, 3) Buy others, 4) Repurchase shares. Leverage is currently in the target range, leaving ample capital to deploy toward growth and share repurchase. Of the $6.1B of capital deployed over the past two years, 72% has gone toward share repurchases, representing approximately 1/3rd of the average market cap over the same time period. Between 2024 and 2026, management hopes to generate and deploy between $5.5B and $8.5B, or between 27% and 42% of the current market cap.