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Jelly Roll Capital Equity Research |
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Market Analysis, Education, and Wall Street-Quality Stock Reports |
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Update on Builders FirstSource (BLDR) |
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With less than two weeks to stock report feature Builders FirstSource’s earnings announcement date (April 26th) and the release of the March housing starts number on Tuesday, April 17th, it seems an appropriate time to give an update on the BLDR and what I see happening as more data becomes available. Our primary order of concern for BLDR will likely be the top-line (revenue) number. Right now there are five analyst figures ranging from a low of $420 million for the quarter to a high of $452 million, with the average being $434.25 million. Because Builders FirstSource is strongly tied to the housing starts cycle for sales, correctly estimating that figure is a crucial first step to establishing an estimate for Q1 FY2007 revenues. Right now the non-seasonally adjusted total private housing starts (in thousands) for Q1 total 201.6 for January and February. In establishing a revenue target for BLDR, we use two tools: a linear regression model as well as one that smoothes the seasonality of housing starts. Testing our model using all data available since BLDR became a publicly traded company, we find that the average absolute deviance between the estimate given by our model and the actual results is 3.8%, with the overall average (taking into account both over– and under-estimates) is less than 0.1%. With the given results, we can be fairly certain that, for an annual period, our estimates are a good approximation of Builders FirstSource’s actual results. On a quarterly basis, some additional uncertain is inherent, but we should be able to come reasonable close in our estimate as well - see the bottom of the page for a historical comparison. The March housing starts figure (as well as any revision to the one given in February) will largely be the final piece of the puzzle in determining revenues. With January starts at 95.4 and February at 106.2, our model says that, barring a huge downward spike in starts for March, BLDR should beat on the analyst consensus revenue line with $467 million in revenues. That number assumes 110 housing starts for the month of March, whereas our model implies that analysts have priced about 280 housing starts for the quarter, or 75 housing starts in March. Given the seasonal uptick that normally occurs, we believe that March starts will surpass February starts, so revenue for Builders FirstSource should surpass the current low expectations. This may be a bottom for housing stocks in general.
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