Beacon Roofing Covered as Hold

Jun 14, 2008 (Zacks Investment Research via COMTEX) -- BECN | Quote | Chart | News | PowerRating -- Beacon Roofing Supply, Inc. (BECN) reported a second quarter loss of $0.18 per share, greater than our estimate of a loss of $0.15 per share and the prior-year level of $0.14 per share. This is due to lower margins and high operating expenses. Going forward, while BECN benefits from market share gains, product mix, acquisitions, a scale driven reduction in purchasing costs, and other cost-reduction efforts; a slowing housing industry in the U.S. will adversely impact its sales and margins. Moreover, the stock already trades at a premium to the industry median multiple, which adequately reflects the overall positive fundamental outlook. Hence, we retain our Hold rating on shares of BECN.We have valued Beacon Roofing Supply on a P/E multiple basis. At its current price, BECN trades at a P/E of 21.7x our FY08 EPS estimate of $0.55 a premium to the industry median multiple. We believe BECN s strong competitive position in the roofing distribution business warrants a premium. The main risks to earnings growth are lack of acquisition opportunities and delays in project work due to the collapse of the housing bubble. The current high P/E multiple, relative to the industry, adequately reflects the overall positive fundamental outlook. We see no reason for a significant expansion in P/E multiple at this time. Our target price of $12.50 is based on about 22.7x our FY08 EPS estimate of $0.55.Read the full analyst report on BECN

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