Installed Building Products, Inc. (PI – Free Report) is poised to benefit from strong end-market demand, continued success of local branches, asset-light business model and competent acquisition strategies.
Shares of this residential insulation installer have risen 6% in the last three months compared to an 8.8% rise in the industry’s Zacks Building Products – Miscellaneous. Although IBP stock has slightly underperformed its industry, the 2022 and 2023 earnings per share estimates for this Zacks Rank #2 (Buy) company are up 4.1% and 7.5% in the last 30 days. This positive trend signifies bullish sentiment from analysts, indicating strong fundamentals and the expectation of outperformance in the near term. You can see Full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe that IBP offers a good investment opportunity, as evidenced by its VGM score of A.
Image Source: Zacks Investment Research
Let’s dive into other factors that make this stock a profitable choice.
What makes the stock an attractive choice?
Inorganic movements: Acquisitions are an important part of Installed Building Products’ growth strategy. This led to the diversification of its geographies, end markets and products. The company maintains a strong pipeline of acquisition candidates that takes into account geographic expansion in the core end-market of residential insulation and acquisition opportunities that aid in the continuation of end-market and end-product diversification strategies.
During the first six months of 2022, it completed three business combinations. The latest of these acquisitions was Pisgah Insulation and Fireplaces of NC, LLC, in March 2022.
Higher return on equity (ROE): ROE for the last 12 months of Installed Building Products is indicative of growth potential. ROE for the trailing 12 months is 50.9%, much higher than the industry’s 5.7%, reflecting the company’s efficient use of shareholder funds.
Solid performance: The company has been capitalizing on strong end-market demand and the continued success of local branches, which prudently align selling prices with the value IBP offers its customers. Although interest rates continue to rise from historically low levels, the company remains optimistic given the strong demand for installation services.
The company’s net income grew 38.7% year-over-year to $488.1 million during the second quarter of 2022. Adjusted EBITDA grew 53.1% to $119.5 million from the prior year, supported by strong sales growth, improved gross margin, and lower selling and administrative expenses (as a percent of net income).
Meanwhile, the company has also returned $59.3 million to shareholders in the second quarter through dividends and share buybacks.
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