General Thesis

The US housing market is short 5.5 million homes due to a lag over the past 20 years.
There is an increase in average home prices caused by low mortgage rates and supply shortages.
The need for new homes will kick off a “supercycle” of homebuilding. The price of home supplies has shot up in price in recent times. However, prices have begun to down with supply chains recovering.
Builder FirstSource is currently trading at ~7x EV/(EBITDA – CapEx). It is traditionally around 9x – 12x.

Company Overview

BLDR is a leading supplier of building supplies and manufactured goods for a variety of customers.
The company operates with 550 unique locations across the U.S
Offers a multitude of building supplies and manufactured components.

Valuation and Analysis

Bldr has an excellent case to have a core business price at $70 per share. With the business model and the Biden administration regarding the $2 billion infrastructure bill. BLDR is a leading company in the industry with the ability to achieve economy of scale.
The upside assumption along with strong trends to the housing "supercycle", the business is valued at $83 per share.
A reasonable downside of BLDR would be $65 per share with technical analysis suggesting it to be a strong support level.

Revenue Assumption

Home R&R Market Spending
- R&R market spending has been growing at 4.6% year over year since 2010. With a 5% growth in 2021.
- Considerable growth according to the Leading Indicator of Remodeling Activity. Remodeling has increased to 8.6% from 6.7% in the first two quarters of 2021 alone.

Construction Building Material by BLDR 4Q 2020 presentation ($120 billion)
- The total volume growth of housing begins to multiply by an estimated cost of materials growth.
- There is a 24% commodity appreciation in price in 2021 with normalization in 2022

Gross margins

Margins are up 2% across all sectors due to the increase in commodity prices. An expectation of margins to slow down the increase with specialization in lumber and products and later on in the "supercycle" for the housing market. Margins are expected to continue to grow by 0.5% year over year

EBITDA Margins

Rise of specialized products by 10% in 2022 and stabilizing at 9% or 8% year over year
Rise of lumber at 10% in 2022 and stabilizing at 7% through the housing cycle.
Overall EBITDA margins at 16% with commodity volatility and BMC merger.