KeyBanc Capital Markets Initiates Coverage On Beacon Roofing Supply With A Hold Rating

KeyBanc Capital Markets initiates coverage on Beacon Roofing Supply, Inc. BECN with a HOLD rating, with the Company's ability to consolidate the fragmented U.S. roofing distribution industry offset near term by valuation. BECN's current net leverage at 20% can easily fund its target of 10-15% sales growth from
acquisitions, but deals have been elusive highlighting near-term growth challenges.

BECN is well positioned to be a major consolidator in the roofing distribution industry, as sellers lower their prices and/or when industry growth justifies BECN paying a higher multiple. Since 2008, the Company has benefitted from inflationary pricing in both residential and commercial products that diluted fixed overhead costs as volume fell, creating additional operating leverage as volume recovers at current prices.

Risks to the stock include a longer than expected downturn in residential and
non-residential roofing markets, worse than expected U.S. GDP growth, low
storm-related demand, a higher mix of non-residential sales pressuring gross margin, a curtailment in rebates from manufacturers, input cost inflation, an inability to pass on costs to customers and price cuts at competitors.

BECN is trading higher at $20.98