TRG | The Bottom Line – 12/10

As 2021 comes to a close, a few familiar traditions are coming back: in-person public company investor days, sell-side investor conferences and industry shows, and as witnessed last week, the full NYC holiday decoration experience. Using the Big Apple as a barometer of where we are in the COVID journey, throngs lined 5th Avenue to get a glimpse of the Rockefeller Center Christmas tree and Saks Fifth Avenue light show. A nod to the booming growth in the Southwest, Builders FirstSource (BLDR) hosted its investor day in Dallas last week, outlining its growth bogie through 2025: to grow base business sales at 10% CAGR, EBITDA at 15% CAGR (margin up 50 bps annually), adj. EPS CAGR of 30%, and have $7-10B of capital for deployment from 2022-2025. These components drive projected FY’25 results: base sales of $23.1B, EBITDA of $3.0B (margin of 13.2%), and adj. EPS of $12.40. Throughout this time, BLDR expects FCF conversion of 100% of net income. What does this all me? BLDR’s current enterprise value (EV) relative to FY’25 EBITDA is ~6x, the price to BLDR’s FY’25 FCF estimate of $1.7B is ~9x and 6x P/E. When taking into account $7-10B of capital, we find the stock exceptionally attractive. We believe BLDR has numerous levers to drive strong business performance, gain share in a growing marketplace, supplemented by acquisitions and share repurchases. In summary, we think the targets are valid and achievable.