TopBuild (BLD) Up 30.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for TopBuild (BLD). Shares have added about 30.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TopBuild due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

TopBuild’s Q1 Earnings & Revenue Beat, Margins Up

TopBuild Corp. came up with better-than-expected first-quarter 2020 results. Earnings not only surpassed the Zacks Consensus Estimate but also grew impressively from the prior-year quarter, backed by strong volume and pricing, as well as acquisitions.
 
Inside the Headlines

The company reported adjusted earnings of $1.37 per share, which surpassed the consensus estimate of $1.27 by 7.9% and grew 29.2% from the prior-year period. The uptrend was primarily backed by higher sales volumes and improved margins.

Total net sales rose 5.5% on a year-over-year basis to $653.2 million and topped the consensus mark of $650 million by 0.5%. The upside was driven by higher sales volumes and selling prices.

Segmental Performance

Installation (TruTeam) revenues increased 5.9% year over year to $475.9 million. Acquisitions added 1.1% to the growth. Volume grew 2.7% and selling price was up 2.2% from the prior-year quarter. Operating margin in the quarter expanded 120 basis points (bps) to 12.7%.

Revenues of the Distribution (Service Partners) segment grew 4.8% year over year to $214.2 million, driven by 3.8% volume growth and 0.9% price increase. Operating margin also improved 140 bps from the year-ago level to 11.5%.

Operating Highlights

Adjusted gross margin of 26.3% expanded 120 bps. Adjusted operating profit of $70.3 million also increased almost 19% year over year. Adjusted operating margin improved 130 bps from the year-ago period to 10.8%. Both gross and operating margin improvements were driven by higher selling prices, improved labor and sales productivity, and lower acquisition and closure costs, partially offset by high material costs.

Adjusted EBITDA grew 18.5% from the year-ago quarter to $88.4 million. Adjusted EBITDA margin improved 150 bps to 13.5% during the quarter.

Buyouts

TopBuild wrapped up two acquisitions in the first quarter, namely Hunter Insulation and Cooper Glass. In 2019, the two firms on a combined basis generated approximately $19 million in annual revenues.

Financial Update

Cash and cash equivalents as of Mar 31, 2020 were $187 million, up from $184.8 million at 2019-end. The company has $388.6 million available borrowing capacity under the revolving facility. On Mar 23, 2020, TopBuild announced that it had entered into a new term loan and revolving credit facility, replacing the previous senior secured facilities. The revolving credit facility was upsized by $200-$450 million, which increased the total borrowing capacity to $750 million. In addition, the maturity date was extended for three years to March 2025.

In the first quarter, the company repurchased 188,100 shares for $75.10 per share. As of Mar 31, 2020, $75 million was remaining under the $200-million authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -23.08% due to these changes.

VGM Scores

Currently, TopBuild has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise TopBuild has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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