Installed Building (IBP) Looks Promising: Invest in the Stock – September 16, 2022

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.

Other key picks

Arcosa, Inc. (HERE Free Report), currently ranked #1 by Zacks, is a manufacturer of infrastructure-related products and services serving the construction, energy, and transportation markets.

ACA’s expected earnings growth rate for 2022 is 19.7%. The Zacks Consensus Estimate for current year earnings has improved to $2.31 per share from $2.08 in the last 30 days.

united rentals, inc. (URIs Free Report), which currently holds a #1 Zacks rank, has benefited from a broad recovery in activity across all end markets it serves. Higher margins from rental income and used equipment sales are additional benefits.

The Zacks Consensus Estimate for URI’s 2022 earnings rose to $31.73 per share from $31.66 in the last 30 days. The estimated figure suggests a year-on-year growth of 43.8%.

Gibraltar Industries, Inc. (STONE Free Report), currently ranked #2 by Zacks, benefits from its three-pillar value creation strategy, a strong real estate market, and strong demand from legacy businesses and TerraSmart.

ROCK’s expected earnings growth rate for 2022 is 19.4%. The Zacks Consensus Estimate for current year earnings rose to $3.32 from $3.30 per share in the last 30 days.

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