Builders FirstSource (NYSE:BLDR) stock dropped 1.8% in Wednesday morning trading after DA Davidson analyst Kurt Yinger downgraded the building material company’s stock to Neutral from Buy as the current rising interest rate environment limits its upside potential.
“Sputtering” single-family home construction will constrain multiple expansion, and “management’s preliminary commentary on potential 2023 adjusted EBITDA margins represent a high hurdle,” the analyst wrote in a note to clients.
During Builder FirstSource’s (BLDR) Q3 earnings call, Chief Financial Officer Peter Jackson said, “we believe we can sustain a double-digit EBITDA margin and deliver solid cash flow of over $1B.”
Yinger trimmed his EPS estimates for Q4 to $2.58 from $2.65 and for 2023 to $6.75 from his prior estimate of $7.79.
“While we continue to believe BLDR is pursuing a strategy that will allow them to take share, enhance their positioning within the industry, and endure a downturn, we are stepping to the sidelines with what we see as limited upside in the current backdrop,” Yinger said.
The Neutral rating contrasts with the SA Quant rating of Buy and diverges from the average Wall Street rating of Strong Buy.
SA contributor Integrated Housing, also Neutral on BLDR, says it’s the “right stock, wrong time”