Building products supplier Builders FirstSource (BLDR) faces several fierce headwinds in the U.S. housing market, and Zacks senior retail analyst Rob Plaza, CFA explains in his latest report why he is keeping his rating a Sell on the stock:
Builders FirstSource's sales were $23 million below our forecast, but its EPS [earnings per share] were $0.04 ahead of our estimate thanks to a lower-than-expected tax rate. The company continues to face an uphill battle in an extremely difficult housing industry that will persist well into 2008. This will negatively impact BLDR's sales and earnings for the next few quarters.
That said, we think the company is a strong operator that should continue to take market share, but its business model will not be able to overcome the overall weakness in the housing industry. We would avoid the stock until it trades substantially lower or there is evidence of stabilization in the housing market.
The company's 2007 and 2008 EPS results should turn out to be the trough earnings during this down cycle in housing. Unfortunately, we believe the bottom is still too far away to try to bottom-fish in this sector. We maintain our Sell rating and lower our target price from $14 to $13.
Read the full analyst report on BLDR
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