Investing.com -- Shares of Builders FirstSource (NYSE:BLDR) rose 1.2% in pre-market trading on Thursday after Goldman Sachs initiated coverage with a "buy" rating and set a 12-month price target of $225.
Goldman Sachs analysts believe Builders FirstSource, a key supplier of building materials and construction services, is poised to benefit from an anticipated rebound in new residential construction.
The analysts flag that 82% of the company's sales are tied to new home builds, making it particularly sensitive to the recovery in housing activity.
“Taken together, we model consolidated revenues will expand at a 5.3% CAGR between 2024 and 2026,” said analysts at Goldman Sachs.
Additionally, the note mentioned the company’s efforts to diversify its offerings, particularly through higher-margin, value-added services such as offsite truss and millwork production.
These services, along with a focus on improving efficiency and leveraging digital platforms, are expected to support margin expansion and drive future profitability.
Builders FirstSource has also been recognized for its robust balance sheet and ability to deploy capital effectively.
Since 2021, the company has committed more than $3 billion toward organic growth and acquisitions, which has resulted in a 45% reduction in its share count.
This capital flexibility, combined with strong cash flow generation, positions the company well for further expansion and shareholder returns.
The Goldman Sachs initiation of coverage comes at a time when broader economic factors, such as a potential reduction in interest rates, could further stimulate housing demand.
As housing affordability improves, especially for single-family homes, Builders FirstSource stands to capitalize on this momentum.