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All of this homebuilding is driving me crazy. All I hear is “LOUD NOISES!”.
Why is all of this homebuilding going on? Who wants to buy all of these houses? Who builds these houses? Where do they get all of the stuff to build all of these houses? Why do I keep hearing “LOUD NOISES!”?
So you want to be a homebuilder, but you hate “LOUD NOISES!” How on earth can you make any money building houses if you hate “LOUD NOISES!”.
Well, you’re a very clever homebuilder. You bought some land really cheap from some unsuspecting farmer. You take the mayor out to a go-go bar and you get pictures of him getting several lap dances and voila you have a permit to build. Wow..you’re good. You’ll make a ton of money once you build those houses. But you hate “LOUD NOISES!”. Homebuilders have become community planners. They need someone else to do the dirty work.
You need some big time help. Wouldn’t it be great if someone else just built the houses for you ? That’s why you call Building Materials Holding Corp. Building Materials doesn't just supply construction products. It also handles the work, providing teams of specialty contractors to pour concrete and frame houses for builders who prefer to focus on buying land and planning development.
Today I bought Building Materials Corp (BMHC) at 81.92. I will sell it in 4 to 6 weeks at 94.34. Here’s why I like BMHC.
BMHC’s stock is up 286% in the last 12 months yet its PE still resides in the basement at 13. Some guys just don’t get no respect. Look at this magnificent chart. Look how it just rests in my hand:
• Chart pattern indicates a Strong Upward Trend. (See chart above.)
• Relative Strength is Bullish.
• Up/Down volume pattern indicates that the stock is under accumulation.
• The 50 day Simple Moving Average is rising which is Bullish.
• The 200 day Simple Moving Average is rising which is Bullish.
BMHC’s r^2 for 12 months is 0.91, for 6 months is 0.90 and for 3 months is 0.93. This stock just keeps climbing and climbing at a clip of 24% per month. If it keeps this line, I’ll be out of it in less than 3 weeks. So why do I think this will happen?
BMHC is one of the largest residential building products and construction services companies in the U.S., with annual sales in excess of $2 billion. The company competes in the homebuilding industry operating through two subsidiaries: BMC West Corp., which distributes building products and manufactures building components for professional builders and contractors, and BMC Construction Inc., which provides construction services to high volume production builders in key growth markets in Western, Southern and East Coast states. The company operates across the states of Washington, Oregon, Montana, Idaho, California, Nevada, Colorado, Utah, Arizona, Texas, Illinois, Florida, Maryland, Virginia, Delaware and the District of Columbia.
So what is happening is that the major homebuilders are making so much money, that they just want to sit around and drink mint juleps all day. Think of it this way. Remember when you bought your first car and were struggling to pay for your gas and insurance? I bet you used to wash your own car and change your own oil, right? Then you started working for a while and built up a little jing in your pocket and you were thinking maybe you didn’t want to wash your car anymore or change your own oil. So you started going to the car wash and you had Jiffy Lube do your oil change. Then Jiffy Lube wanted to start changing your air filter, transmission fluid, wipers, rotating your tires yada yada yada. Despite knowing that Jiffy Lube is ripping you off completely, you have absolutely no interest in ever changing your oil again.
So, back to the homebuilders. Say Toll Brothers just won a big approval to build houses on some old farmland in a Chicago suburb. Do you think they want to go through the hassle of finding local contractors who will do the work?
“Hey buddy, do you know how to use a radial arm saw?”
“A what? Hey aren’t the Bears playing today?”
“Do you know where we can buy some cedar shingles?”
“Andy Cedarbaum? Isn’t he the guy who caught the foul ball and made the Cubs lose the playoffs?”
“No, that was Steve Bartman”
“Oh”
Get my drift. This is “LOUD NOISES!” Toll Brothers hates LOUD NOISES! Don’t even ask me about Hovnanian. They’re probably eating grape leaves and doing pinky line dances somewhere. They don’t want to go prancing down to the union hall to ask guys in grimy tank top shirts if they want to pound nails.
Building Materials has established close ties to local contractors as well as large builders. They've demonstrated that they can work with the big builders.
The tune in America is when you get fat, you get lazy. You want someone else to do your work. You want someone else to clean your house and you want someone else to build your homes for you. That’s why BMHC is a great stock to own.
What do they do? They specialize in delivering high-quality building products and turnkey construction services to national, regional and local homebuilders and contractors. For high-volume production homebuilders, houses are built on-site, using integrated services that include labor and risk management, materials procurement, component manufacturing, and in certain markets, skilled labor crews that pour foundations, frame, set and anchor wood or concrete block walls, fasten roof trusses and sheath roofs, as well as install total plumbing and HVAC systems. Roof trusses, floor trusses and wall panels are designed and manufactured. A broad range of building materials is supplied. Procurement, handling and distribution are streamlined, providing customized packages sequenced for job site requirements. On-time delivery is coordinated with a fleet of more than 2,000 handling and delivery vehicles.
Builders' plans are analyzed with recommendations to minimize materials usage, reduce construction cycle time and improve the quality of the finished home. All this and you get a free car wash coupon with 10 houses built.
The company targets professional builders engaged in new residential construction. Builders are generally repeat customers, with high volume purchasing needs that require custom engineering, manufacturing, construction services, materials procurement, on time job site delivery and trade credit. BMHC's largest customer accounted for 5.6% of sales in 2004, while the top five customers represented less than 19% of sales.
BMHC believes its focus on service is a key factor that distinguishes it from competitors. The company believes its dedication to providing superior customer service to builders allows employees to develop consistent relationships and generate a large volume of repeat and referral business.
Management is focusing on growing these businesses by diving into the flab of the homebuilders. They will target the expansion of construction services and manufactured building components - which include framing, shell construction, installation, millwork, trusses and wall panels. Pretty soon all of the major homebuilders will want to flick the light switch to build a house, rather than have to assemble all of the pieces themselves. As the homebuilding industry continues to consolidate and the competitive advantage goes to those of scale, BMHC will become more and more important to the homebuilding industry.
The company operates in a highly fragmented industry fraught with intense competition. With high-volume homebuilders increasingly outsourcing their construction services, demand for integrated and full services has been on the rise. To seize this opportunity, the firm is focused on expanding its services through acquisition. In line with this, the company, through BMC Construction, took over KBI Norcal (100% stake), and acquired substantial stakes in many organizations, including WBC Mid-Atlantic (67.3%), and WBC Construction (60%) in the past three years. Consequently, the firm’s top-line grew by a CAGR of 34.2% during the years. In the current fiscal, the company furthered its acquisition initiatives by taking over majority
stakes in RCI Construction, and Riggs Plumbing. These acquisitions expanded BMHC’s service business in Chicago and Arizona. The company's acquisition strategy is focused on increasing its offerings of value added construction services and manufactured building components including trusses, millwork and wall panels.
Ok..great story, but what does it mean in terms of earnings? Last week BMHC reported their earnings for the most recent quarter. Sales increased 29% to $702 million, compared to $543 million in the same quarter a year ago. For the six months ended June 30, 2005, sales increased 33% to $1,274 million compared to $960 million in the same period of 2004.
Net income was $33.3 million or $2.28 per share compared to $12.6 million or $0.92 per share in the same quarter a year ago. For the six months ended June 30, 2005, net income was $54.5 million or $3.75 per share compared to $16.8 million or $1.23 per share in the same period of 2004.
Ok..let’s have a look. Last quarter they made $2.28/share and are now $3.75/share for the year. Homebuilders have all reported significant backlogs of orders. To me, that would mean that BMHC will be booking more and more business. However, the ANAL-ysts say that the Sep 05 quarter will be only $2.30/share. Fwud? They also say that full year earnings for 2005 will be only $7.70/share. FWUD?? LOUD NOISES!!
Is this guys smoking crack? Where did he get his CFA from, 7-11? BMHC beat March earnings by 200%, how many times does this guy need to be piledrived? Let’s take a closer look at BMHC’s performance metrics:
The current financial condition of BMHC is very strong as evidenced by the large number of positive fundamental factors. The stock represents a good value when compared to other stocks in its industry group. BMHC's management is doing a terrific job of managing its operations efficiently so as to ensure future earnings growth when compared to industry averages. The company’s finances are sound at this time. Operating margins are improving and operating cash flow remains positive. Price momentum is strong and the stock has outperformed the market when compared to the S&P 500. As long as the positive fundamental outlook does not change, this stock should be a strong performer over the intermediate term.
Now that it's headed toward over $2.5 billion in revenue this year, Building Materials finds itself competing against fewer local and regional contractors able to match its size or breadth of services. As they grow in scale, they can begin to standardize the stuff they make, and have leverage in what they supply to the homebuilders, offering them cost saving incentives.
Plus, BMHC can get the work done fast, using its scale advantage. In this hot real estate market, the faster the homes go up, the faster the homebuilders make money. The more money the homebuilders make, the more BMHC makes. BMHC can then pay their own suppliers faster, who become even happier with BMHC and align themselves with BMHC, pushing back even further the smaller competition. These fundamental strengths have generated these kind of attractive performance numbers:
• The TTM (Trailing Twelve Month) Price/Earnings (P/E) ratio is 16.55. This ratio is lower than the average P/E for this Industry Group (Retail-Bldg.Sup.) which is 20.50. The P/E of the S&P 500 is 20.28.
• The Price/Book Value ratio is 3.50. The average Price/ Book for this Industry Group (Retail-Bldg.Sup.) is 3.97.
• The Price/Cash Flow ratio is 37.60. A low ratio shows a strong ability to generate cash and reflects well on a company’s stock price and liquidity. The average Price/Cash Flow ratio for this Industry Group (Retail-Bldg.Sup.) is 42.76.
• The Price/TTM Sales ratio is 0.51. A stock with a low Price/Sales ratio indicates a stock is not overvalued. The Price/Sales ratio is significant since it is harder to manipulate sales than earnings. The Price/TTM Sales ratio for this Industry Group (Retail-Bldg.Sup.) is 1.38.
• The Operating Cash Flow was Positive in the last three years.
• The Return on Equity (ROE) is 24.40%. This ratio helps represent the future ability of a company to grow earnings. The average ROE for this Industry Group (Retail-Bldg.Sup.) is 22.27%.
• The Current Ratio is 2.32. Current ratios above 1 mean that a company’s shortterm debts are less than its assets. The higher the ratio, the stronger the company’s finances.
• The TTM Sales Per Share (SPS) growth rate of 44.46% is greater than the three year cumulative average SPS growth rate of 0.11%.
• Earnings Trend is Positive for the last three quarters on a year over year basis.
• In June 2004, BMHC entered into interest rate swap contracts that effectively convert a portion of the floating rate borrowings of the term note to a fixed interest rate through June 2009, thus reducing the impact of increases in interest rates on future interest expense. Approximately 81% of the outstanding floating rate borrowings of the term note as of December 31, 2004 have been hedged through the designation of interest rate
Ok $$$MR. MARKET$$$ enough with the technical mumbo jumbo, why don’t you tell us how much money BMHC will really make this year. Glad you asked. Based on its phenomenal growth of the homebuilding industry, and its expanding backlog of work. Combined with the fact that BMHC is penetrating deeper and deeper into the supply chain of these homebuilders, one can only conclude that 2005 revenues will hit $2.7 billion. This will generate EPS of $9.13 for 2005. At today’s PE of 13, this computes a stock price of $118.69/share , which is well past my sell target.
Oh yea, BMHC also pays a dividend if you get lucky and are holding it when they spit out the cash. Enough of the LOUD NOISES! Let’s hear what the boss has to say:
"We are extremely pleased with our continued outstanding performance during the second quarter," said Robert E. Mellor, Chairman, President and Chief Executive Officer. "Sales increased 29% and we again achieved record net income. BMC West and BMC Construction generated results ahead of our expectations as we continue to benefit from strong housing demand and construction activity in our markets. Additionally, we remain successful in managing inventory and efficiencies in our operations. Combined with momentum in the homebuilding industry, our customer-focused business strategy and success in expanding construction services continues to drive our financial performance."
"No single entity is in all the markets we are in, doing what we are doing,"
"The very strong momentum from our performance last year has continued into 2005. We continue to expand geographically and broaden our construction services offerings to strengthen our market share. Increased scale and management's focus on excellence in delivering value-added products and construction services, combined with favorable long-term housing trends in many of our markets, continue to drive our excellent financial performance."
Ok…I believe him. Now stop those LOUD NOISES!
I am HUGE!!!
$$$MR. MARKET$$$
Come visit all your investment friends at www.mrmarketishuge.com
Did you like this write up? Let me hear it: [email protected]
Why is all of this homebuilding going on? Who wants to buy all of these houses? Who builds these houses? Where do they get all of the stuff to build all of these houses? Why do I keep hearing “LOUD NOISES!”?
So you want to be a homebuilder, but you hate “LOUD NOISES!” How on earth can you make any money building houses if you hate “LOUD NOISES!”.
Well, you’re a very clever homebuilder. You bought some land really cheap from some unsuspecting farmer. You take the mayor out to a go-go bar and you get pictures of him getting several lap dances and voila you have a permit to build. Wow..you’re good. You’ll make a ton of money once you build those houses. But you hate “LOUD NOISES!”. Homebuilders have become community planners. They need someone else to do the dirty work.
You need some big time help. Wouldn’t it be great if someone else just built the houses for you ? That’s why you call Building Materials Holding Corp. Building Materials doesn't just supply construction products. It also handles the work, providing teams of specialty contractors to pour concrete and frame houses for builders who prefer to focus on buying land and planning development.
Today I bought Building Materials Corp (BMHC) at 81.92. I will sell it in 4 to 6 weeks at 94.34. Here’s why I like BMHC.
BMHC’s stock is up 286% in the last 12 months yet its PE still resides in the basement at 13. Some guys just don’t get no respect. Look at this magnificent chart. Look how it just rests in my hand:
• Chart pattern indicates a Strong Upward Trend. (See chart above.)
• Relative Strength is Bullish.
• Up/Down volume pattern indicates that the stock is under accumulation.
• The 50 day Simple Moving Average is rising which is Bullish.
• The 200 day Simple Moving Average is rising which is Bullish.
BMHC’s r^2 for 12 months is 0.91, for 6 months is 0.90 and for 3 months is 0.93. This stock just keeps climbing and climbing at a clip of 24% per month. If it keeps this line, I’ll be out of it in less than 3 weeks. So why do I think this will happen?
BMHC is one of the largest residential building products and construction services companies in the U.S., with annual sales in excess of $2 billion. The company competes in the homebuilding industry operating through two subsidiaries: BMC West Corp., which distributes building products and manufactures building components for professional builders and contractors, and BMC Construction Inc., which provides construction services to high volume production builders in key growth markets in Western, Southern and East Coast states. The company operates across the states of Washington, Oregon, Montana, Idaho, California, Nevada, Colorado, Utah, Arizona, Texas, Illinois, Florida, Maryland, Virginia, Delaware and the District of Columbia.
So what is happening is that the major homebuilders are making so much money, that they just want to sit around and drink mint juleps all day. Think of it this way. Remember when you bought your first car and were struggling to pay for your gas and insurance? I bet you used to wash your own car and change your own oil, right? Then you started working for a while and built up a little jing in your pocket and you were thinking maybe you didn’t want to wash your car anymore or change your own oil. So you started going to the car wash and you had Jiffy Lube do your oil change. Then Jiffy Lube wanted to start changing your air filter, transmission fluid, wipers, rotating your tires yada yada yada. Despite knowing that Jiffy Lube is ripping you off completely, you have absolutely no interest in ever changing your oil again.
So, back to the homebuilders. Say Toll Brothers just won a big approval to build houses on some old farmland in a Chicago suburb. Do you think they want to go through the hassle of finding local contractors who will do the work?
“Hey buddy, do you know how to use a radial arm saw?”
“A what? Hey aren’t the Bears playing today?”
“Do you know where we can buy some cedar shingles?”
“Andy Cedarbaum? Isn’t he the guy who caught the foul ball and made the Cubs lose the playoffs?”
“No, that was Steve Bartman”
“Oh”
Get my drift. This is “LOUD NOISES!” Toll Brothers hates LOUD NOISES! Don’t even ask me about Hovnanian. They’re probably eating grape leaves and doing pinky line dances somewhere. They don’t want to go prancing down to the union hall to ask guys in grimy tank top shirts if they want to pound nails.
Building Materials has established close ties to local contractors as well as large builders. They've demonstrated that they can work with the big builders.
The tune in America is when you get fat, you get lazy. You want someone else to do your work. You want someone else to clean your house and you want someone else to build your homes for you. That’s why BMHC is a great stock to own.
What do they do? They specialize in delivering high-quality building products and turnkey construction services to national, regional and local homebuilders and contractors. For high-volume production homebuilders, houses are built on-site, using integrated services that include labor and risk management, materials procurement, component manufacturing, and in certain markets, skilled labor crews that pour foundations, frame, set and anchor wood or concrete block walls, fasten roof trusses and sheath roofs, as well as install total plumbing and HVAC systems. Roof trusses, floor trusses and wall panels are designed and manufactured. A broad range of building materials is supplied. Procurement, handling and distribution are streamlined, providing customized packages sequenced for job site requirements. On-time delivery is coordinated with a fleet of more than 2,000 handling and delivery vehicles.
Builders' plans are analyzed with recommendations to minimize materials usage, reduce construction cycle time and improve the quality of the finished home. All this and you get a free car wash coupon with 10 houses built.
The company targets professional builders engaged in new residential construction. Builders are generally repeat customers, with high volume purchasing needs that require custom engineering, manufacturing, construction services, materials procurement, on time job site delivery and trade credit. BMHC's largest customer accounted for 5.6% of sales in 2004, while the top five customers represented less than 19% of sales.
BMHC believes its focus on service is a key factor that distinguishes it from competitors. The company believes its dedication to providing superior customer service to builders allows employees to develop consistent relationships and generate a large volume of repeat and referral business.
Management is focusing on growing these businesses by diving into the flab of the homebuilders. They will target the expansion of construction services and manufactured building components - which include framing, shell construction, installation, millwork, trusses and wall panels. Pretty soon all of the major homebuilders will want to flick the light switch to build a house, rather than have to assemble all of the pieces themselves. As the homebuilding industry continues to consolidate and the competitive advantage goes to those of scale, BMHC will become more and more important to the homebuilding industry.
The company operates in a highly fragmented industry fraught with intense competition. With high-volume homebuilders increasingly outsourcing their construction services, demand for integrated and full services has been on the rise. To seize this opportunity, the firm is focused on expanding its services through acquisition. In line with this, the company, through BMC Construction, took over KBI Norcal (100% stake), and acquired substantial stakes in many organizations, including WBC Mid-Atlantic (67.3%), and WBC Construction (60%) in the past three years. Consequently, the firm’s top-line grew by a CAGR of 34.2% during the years. In the current fiscal, the company furthered its acquisition initiatives by taking over majority
stakes in RCI Construction, and Riggs Plumbing. These acquisitions expanded BMHC’s service business in Chicago and Arizona. The company's acquisition strategy is focused on increasing its offerings of value added construction services and manufactured building components including trusses, millwork and wall panels.
Ok..great story, but what does it mean in terms of earnings? Last week BMHC reported their earnings for the most recent quarter. Sales increased 29% to $702 million, compared to $543 million in the same quarter a year ago. For the six months ended June 30, 2005, sales increased 33% to $1,274 million compared to $960 million in the same period of 2004.
Net income was $33.3 million or $2.28 per share compared to $12.6 million or $0.92 per share in the same quarter a year ago. For the six months ended June 30, 2005, net income was $54.5 million or $3.75 per share compared to $16.8 million or $1.23 per share in the same period of 2004.
Ok..let’s have a look. Last quarter they made $2.28/share and are now $3.75/share for the year. Homebuilders have all reported significant backlogs of orders. To me, that would mean that BMHC will be booking more and more business. However, the ANAL-ysts say that the Sep 05 quarter will be only $2.30/share. Fwud? They also say that full year earnings for 2005 will be only $7.70/share. FWUD?? LOUD NOISES!!
Is this guys smoking crack? Where did he get his CFA from, 7-11? BMHC beat March earnings by 200%, how many times does this guy need to be piledrived? Let’s take a closer look at BMHC’s performance metrics:
The current financial condition of BMHC is very strong as evidenced by the large number of positive fundamental factors. The stock represents a good value when compared to other stocks in its industry group. BMHC's management is doing a terrific job of managing its operations efficiently so as to ensure future earnings growth when compared to industry averages. The company’s finances are sound at this time. Operating margins are improving and operating cash flow remains positive. Price momentum is strong and the stock has outperformed the market when compared to the S&P 500. As long as the positive fundamental outlook does not change, this stock should be a strong performer over the intermediate term.
Now that it's headed toward over $2.5 billion in revenue this year, Building Materials finds itself competing against fewer local and regional contractors able to match its size or breadth of services. As they grow in scale, they can begin to standardize the stuff they make, and have leverage in what they supply to the homebuilders, offering them cost saving incentives.
Plus, BMHC can get the work done fast, using its scale advantage. In this hot real estate market, the faster the homes go up, the faster the homebuilders make money. The more money the homebuilders make, the more BMHC makes. BMHC can then pay their own suppliers faster, who become even happier with BMHC and align themselves with BMHC, pushing back even further the smaller competition. These fundamental strengths have generated these kind of attractive performance numbers:
• The TTM (Trailing Twelve Month) Price/Earnings (P/E) ratio is 16.55. This ratio is lower than the average P/E for this Industry Group (Retail-Bldg.Sup.) which is 20.50. The P/E of the S&P 500 is 20.28.
• The Price/Book Value ratio is 3.50. The average Price/ Book for this Industry Group (Retail-Bldg.Sup.) is 3.97.
• The Price/Cash Flow ratio is 37.60. A low ratio shows a strong ability to generate cash and reflects well on a company’s stock price and liquidity. The average Price/Cash Flow ratio for this Industry Group (Retail-Bldg.Sup.) is 42.76.
• The Price/TTM Sales ratio is 0.51. A stock with a low Price/Sales ratio indicates a stock is not overvalued. The Price/Sales ratio is significant since it is harder to manipulate sales than earnings. The Price/TTM Sales ratio for this Industry Group (Retail-Bldg.Sup.) is 1.38.
• The Operating Cash Flow was Positive in the last three years.
• The Return on Equity (ROE) is 24.40%. This ratio helps represent the future ability of a company to grow earnings. The average ROE for this Industry Group (Retail-Bldg.Sup.) is 22.27%.
• The Current Ratio is 2.32. Current ratios above 1 mean that a company’s shortterm debts are less than its assets. The higher the ratio, the stronger the company’s finances.
• The TTM Sales Per Share (SPS) growth rate of 44.46% is greater than the three year cumulative average SPS growth rate of 0.11%.
• Earnings Trend is Positive for the last three quarters on a year over year basis.
• In June 2004, BMHC entered into interest rate swap contracts that effectively convert a portion of the floating rate borrowings of the term note to a fixed interest rate through June 2009, thus reducing the impact of increases in interest rates on future interest expense. Approximately 81% of the outstanding floating rate borrowings of the term note as of December 31, 2004 have been hedged through the designation of interest rate
Ok $$$MR. MARKET$$$ enough with the technical mumbo jumbo, why don’t you tell us how much money BMHC will really make this year. Glad you asked. Based on its phenomenal growth of the homebuilding industry, and its expanding backlog of work. Combined with the fact that BMHC is penetrating deeper and deeper into the supply chain of these homebuilders, one can only conclude that 2005 revenues will hit $2.7 billion. This will generate EPS of $9.13 for 2005. At today’s PE of 13, this computes a stock price of $118.69/share , which is well past my sell target.
Oh yea, BMHC also pays a dividend if you get lucky and are holding it when they spit out the cash. Enough of the LOUD NOISES! Let’s hear what the boss has to say:
"We are extremely pleased with our continued outstanding performance during the second quarter," said Robert E. Mellor, Chairman, President and Chief Executive Officer. "Sales increased 29% and we again achieved record net income. BMC West and BMC Construction generated results ahead of our expectations as we continue to benefit from strong housing demand and construction activity in our markets. Additionally, we remain successful in managing inventory and efficiencies in our operations. Combined with momentum in the homebuilding industry, our customer-focused business strategy and success in expanding construction services continues to drive our financial performance."
"No single entity is in all the markets we are in, doing what we are doing,"
"The very strong momentum from our performance last year has continued into 2005. We continue to expand geographically and broaden our construction services offerings to strengthen our market share. Increased scale and management's focus on excellence in delivering value-added products and construction services, combined with favorable long-term housing trends in many of our markets, continue to drive our excellent financial performance."
Ok…I believe him. Now stop those LOUD NOISES!
I am HUGE!!!
$$$MR. MARKET$$$
Come visit all your investment friends at www.mrmarketishuge.com
Did you like this write up? Let me hear it: [email protected]
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