This Week Baird's MidCap Growth Fund Was Named to the Morningstar Prospects List!

Congratulations to Baird’s MidCap Growth Mutual Fund Team – Named to Morningstar Prospects List

This week Morningstar produced their Q4 2016 prospects list. According to Morningstar, “The fourth quarter of 2016 saw a great deal of activity on the Morningstar Prospects list--a list of up-and-coming or under-the-radar investment strategies that Morningstar Manager Research thinks might be worthy of full coverage someday. We added 14 new strategies, seven others graduated to full coverage, and three strategies were dropped from the list.

U.S. Equity   Baird MidCap by Dan Culloton

U.S. Equity Mid-Growth Mutual Fund, Separate Account

Under-the-Radar Manager

An experienced team runs Baird MidCap with a process honed over two decades. The six members have an average tenure of about 11 years, and senior comanager Chuck Severson has worked on the strategy since its June 1993 inception (the mutual fund launched in 2000). Severson and co-lead Ken Hemauer, a 14-year veteran of the squad, use fundamental research with quantitative and technical overlays to pick 50-60 mid-cap stocks that meet their standards for profitability, revenue growth, industry conditions, management strength, and market expectations.

The portfolio caps holdings at 3% at purchase and 5% overall and keeps sector weightings within 25% of its Russell Midcap Growth Index benchmark’s. Bottom-up work determines what’s purchased, usually debt-light firms that can sustain earnings and revenue growth for three to five years. Quant and technical screens help find entry and exit points and manage position sizes. Stocks with strong fundamentals and screen scores get larger weightings. Despite the screens, turnover isn’t high. This team runs about $2 billion, including $1.3 billion in the mutual fund. Milwaukee-based Baird Investment Management is employee-owned, and Severson has between $500,001 and $1 million invested in the fund; Hemauer invests between $100,001 and $500,000.

Portfolio Managers and their Start Date:

Charles F. Severson 12-2000

Kenneth M. Hemauer 05-2010

Mr. Sevenson and Corbin Weyer (AIM alumnus) visited the AIM program this past fall.

Corbin Weyer, Bill Walker, Chuck Severson, and Dr. David Krause

An AIM Holding: Boston Private Financial Holdings (BPFH) by Nat Penn. "Not a strong recommendation for BPFH - just hold to learn more about Trump policies"

Boston Private Financial Holdings, Inc. (BPFH, $16.85): “Just Okay Here”

By: Nathaniel Penn, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

• Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) Boston Private Financial is positioned to offer wealth management and private banking services to high net worth clients across the United States.  With offices in Boston, New York, Los Angeles, San Francisco, San Jose, Florida, and Wisconsin, the company has total assets of over $8 billion and manages over $27 billion of client assets.

• Net interest income in the fourth quarter of 2016 increased 7% year-over-year and 3% over the previous quarter to $51.5 million.   This equates to $200.4 million for fiscal year 2016, an 8% increase from 2015.

• Average total deposits increased 2% over the prior year to $6.0 billion.

• Total assets under management remain flat at $27.6 billion, potentially indicating an inflection point.

• During the fourth quarter, BPFH realized a net after-tax charge of $4.3 million related to goodwill impairment charges and gain on sale of two South California offices.

• The board of directors approved a 10% increase in the quarterly cash dividend to $0.11 per common share.

Key points: Earnings per share of $0.24 beat consensus estimates by $0.03.  Expense control remained very solid and helped drive some of the beat.  Management alluded to this being a reasonable expense level going forward, despite impact from a one-time expense of $9.5 million for goodwill impairment charges.  This was partially offset by the sale of two Southern California offices for a pre-tax net gain of $2.9 million.  Net interest income was 7.0% higher year-over-year on 1-2% loan growth (to $6.0 billion) and the net interest margin remained at 2.88%.  This is down 3bps from last year and remains disappointing.

Net flows have deteriorated after a “less bad” trend for most of the past several quarters.  However, the weakness came more in the form of less new business generation (i.e. less inflow from “greenfield”-type customers).  Client losses continue to moderate and one recent outflow was even voluntary on the part of BPFH due to its relationship being unprofitable.  Management indicated that the slowdown of new business generation is not a loss of momentum in the underlying selling efforts and likely to remain more episodic.

In order to improve ROE from the current ~10% run rate, management indicated the need for help from the yield curve and continued benign credit.  Credit indicators all remain positive despite them downgrading one large commercial office relationship in Los Angeles.  Everything else looks fine.

What has the stock done lately?

I believe the stock can go higher despite the lift from the Trump presidency.  Catalysts will be elevated market valuations and a major inflection in flows as performance improves.  They will lose earn-out earnings for ~$0.07 headwind to EPS estimates after the fourth quarter of fiscal 2017.  Some analysts have speculated that it may be a reason to sell before then.

Past Year Performance: BPFH has increased 72.92% in value over the past year, but the stock is nonetheless a decent value: It is currently trading at 2.0x book, 2.6x tangible.  It currently has a 2.6% dividend yield with room for growth.

 Source: FactSet

My Takeaway

I would like to think that the trend remains our friend if market values stay high and new business generation re-accelerates.  I am currently maintaining a HOLD rating as the valuation is not compelling here - we'll wait and see what tax and regulatory changes come from the new Trump administration.  Offsetting scarcity value makes this investment “just okay” here.

An AIM Equity Holding: Columbia Banking System (COLB) by Steven Hoffmann. “Hold and Keep Watch on COLB's Recent Acquisitions"

Columbia Banking System (COLB, $40.83): “Confident in Columbia to Conquer Expectations”

By: Steven Hoffmann, AIM Student at Marquette University

 Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

·         Columbia Banking System (NASDAQ: COLB) operates as a holding company, which provides financial services. Its activities include personal, business, and commercial banking and wealth management services. The company provides loans, checking and saving accounts, treasury management, mobile banking, and VISA credit cards. Columbia Banking System was founded in 1988 and is headquartered in Tacoma, WA.

·         On January 9, 2017, COLB announced its intent to acquire PCBK (not rated) for $644mm or $27.85 per share in a stock deal that equates to 3.06x TBV, 21.2x PCBK's 2017 EPS estimate, 21% core deposit premium, 34% market premium, and 14.2x the PF 2018 consensus EPS estimate with cost savings (34%).

·         COLB has achieved the highest loan production in its history with over $375 mm in new originations and COLB’s non-performing assets to period end assets ratio improved to the lowest it's been in eight years.

·         COLB has been preparing to surpass $10 billion in assets mark, which it will easily achieve with the recent PCBK acquisition.

·         The population and labor force of all three states continues to grow. Overall, there is excellent job creation and strong GDP throughout the Northwest.

·         This is the 11th consecutive quarter that COLB has paid a special cash dividend. The regular dividend combined with the special dividend constitutes a payout ratio of 83% for the quarter and a dividend yield of 4.9% based on the closing price on October 26.

Key Points

COLB’s acquisition comes at a favorable time in the current market environment: strengthening credit quality, an economic lift-off, rising interest rates, market share opportunity, and a chance to pursue a one-of-a-kind business. PCBK's complementary assets have tremendous value to COLB, especially as COLB can use its strong stock currency to complete the deal, reducing the hit to its own TBV. 

COLB expects the deal to be 8-10% accretive to 2018 / 2019 EPS, respectively with 6% TBV dilution earned back in 3.7 years. Transaction multiples look a little rich relative to others but the deal makes sense strategically, culturally and is complementary from a product & geographic perspective within the Pacific Northwest. PCBK has #1 market share in Eugene, OR (17.1%) with $2.5B in assets including $1.8B in loans & fully funded with $2.2B in deposits (42% noninterest) averaging $155M per branch (14). 

The cost savings target (34%) seems reasonable given the overlap. COLB expects 8% EPS accretion in 2018E and 10% in 2019E. Since the election, deal multiples would have been more reasonable with P/TBV of 2.34x, P/2017E EPS of 16.2x, core deposit premium of 13.8% & a market premium of 28.6%. Lastly, COLB expects 8% EPS accretion and only a modest TBV dilution.

3Q16 Highlights

COLB posted 3Q16 operating EPS of $0.47 (reported: $0.48), in-line with consensus ($0.47) and better than the forecast ($0.45) as higher revenues & a lighter provision was offset by higher expenses. This was another solid quarter from COLB with unexpected core margin expansion (+3 bps to 4.03% ex PAA), stronger than expected loan growth (+10% LQA) on record production, a lighter provision on higher recoveries, and its 11th consecutive special dividend ($0.19) on top of its regular cash dividend ($0.20) that implies a 4.9% adjusted yield.

Positives for the quarter included reported margin expanded 3 bps to 4.13% (consensus 4.07%) including a core margin (ex PAA) that was also up 3 bps to 4.03% due to higher core loan yields (+6 bps to 4.76%). Second, loan growth of 10% LQA or $153M was above consensus (+3%) due to record production (+11% LQ to $375M) primarily driven by C&I, (3) Provision ($1.9M) was below consensus ($3.5M) with NPAs down 7 bps to 0.48%.

On the other hand, expenses ($67M) were above consensus estimate ($64.4M) due to a higher comp & advertising. In addition, operating expense-to-asset ratio deteriorated to 2.76% (+5 bps) but was still below its guidance range of 2.79-2.89%. This was another solid quarter for COLB with good loan growth, unexpected margin expansion and even better credit metrics.

What has the stock done lately?

COLB is down 8.62% MTD, QTD, and YTD so far in 2017. While COLB missed eps 5/8 and revenue 6/8 quarters, they have been preparing for the acquisition of PCBK, which is expected to drive COLB’s bottom-line going forward. As of 3Q16, COLB’s ROIC was 7.49% and ROE was 7.86% with a NIM of 4.13%. Loan/Deposit Ratio was down to 77.69% and Tier 1 Capital Ratio was strong at 11.44%. Total Debt/Total Capital was at 9.61%.

Past Year Performance

Over the past 12 months, COLB is up nearly 41%, primarily driven from the bounce in the market after the election of Trump. The regional environment continues to show strength in COLB’s core areas. During the third quarter, Washington's unemployment rate improved to 5.6% and 20,000 new jobs were added. Idaho's unemployment rate held steady at 3.8% in September and the state ranks third in the nation for year-over-year job growth. Oregon has been outpacing in the country in their job growth rate since 2013. 

The state posted a rate of 3.5% for job growth in September compared to the nationwide average of 1.7%. The Northwest Seaport Alliance, the consolidated container operation at the Port of Seattle and Port of Tacoma is the fourth-largest container gateway in North America. Year-to-date full imports are up 3% and full exports increased 12%.

Source: FactSet

My Takeaway

COLB was originally pitched in September 2012 at 18.50 with a target of 23.47, of which is has obviously shown significant returns, currently trading at $41. P/B is 1.49x and P/E is 18.80 as of 3Q16.

Drivers of continued expansion, solid loan growth and the Northwest banking economy continue to hold in place. The interest rate environment is more favorable for banks than it was in 2012 and the risk of its loan portfolio continues to be mitigated with complementary acquisitions. 

I believe that we should HOLD this name to track its performance through the next few quarters to see how the integration of the most recent acquisition goes in order to evaluate management’s effectiveness to deliver on promises. Indexed to the date it was pitched, COLB has outperformed the Russell 2000 by 1.5x.

Source: FactSet

An AIM International Holding: Westpac Banking (WBK) by Jaclyn Godwin. “WBK Seeks to Re-Focus in 2017”

Westpac Banking Corp. – ADR (NYSE:WBK - US) 

“Australian Bank Controls Costs in Troublesome Times”

By: Jaclyn Godwin, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

Westpac Banking Corp (NYSE: WBK - US) is an Australian bank that offers retail, business, and institutional banking and wealth management services. The firm operates within Australia and New Zealand. It was founded in 1817 and is headquartered in Sydney Australia.

·         Despite difficult macro conditions, WBK reported adequate results in 2016. The firm has focused its efforts on operational disciple and cost management. It continues to strengthen the balance sheet, reporting a Tier 1 Ratio of 9.5% in 2016.

·         The firm has re-evaluated its target return profile, projecting a medium-term ROE closer to 13-14% due to its emphasis on capital and cost management in the past year.

·         As the banking system evolves, it has become more important for firms to go digital. WBK’s emphasis on this facet can observed in the 22% of sales that were attributed to its online platform. The firm’s relationship with Oracle will continue to propel it forward in this regard.

Key Points:

Like many other banks, WBK faces a challenging macro backdrop. Competition remains intense as regulatory and political headwinds continue. Much of his has heightened compliance costs. Though, such Australian capital pressures could ease up in line with President Trump’ selected policies. Despite the environment, the bank has fared well. On a strategic level, management re-focused its efforts on operational discipline. Capital was raised, mortgage rates adjusted, and expenses managed strictly. The company reported 2016 results in line with the previous year. Cash earnings were $7,822, consistent with 2015. ROE was recorded at 14%, down 185 bps and the Tier 1 capital ratio was 9.5%, down 2 bps.  

The stock was added to the portfolio in December of 2015, due in part to its strong balance sheet which continued into 2016. As mentioned, its Tier 1 capital ratio was recorded at 9.5%, well above its preferred range. Due to higher liquidity regulations, the firm strengthened its deposit base and adjusted its provisions to be more conservative. Following an industry-wide trend, the firm repriced their mortgages, leading to an increase in spreads. Unfortunately, fund costs and low interest rates negated this positive impact.

As a result of the renewed focus on liquidity requirements, management has re-evaluated their target ROE. Low interest rates, tighter liquidity standards and higher compliance/regulatory costs have made it difficult to maintain a high ROE. For the medium-term, WBK re-adjusted management to 13-14%.

The firm is also going through a bit of a digital transformation. By the end of fiscal 2016, the firm logged 1 billion logins on its digital channel and attributes 22% of its sales to that channel. Further, seven out of the ten manual activities in call centers were digitized.  A recent partnership with computer technology firm Oracle will propel its customer service platform.

In coming years, it will be necessary to monitor the development of the Australian economy. There has been a surge in the population. Despite this growth, government spending remains tight. WBK’s success will be hinged to Australian policies moving forward.

What has the stock done lately?

There is not much to say about WBK’s recent stock performance. During the latter half of 2016, it saw very little movement, gaining some upward momentum since August of 2016. As of January 20, 2017, the price closed at $24.16.

Past Year Performance: Since the stock was added to the portfolio, WBK has stagnated a bit. Since its addition, the stock has increased ~5.6%. Relative to the S&P 500 index, it has significantly underperformed. It took a hit in early 2016. The Brexit results also had an impact on its decline in late June of 2016. It has yet to reach its five year peak of $35.06 that was record in June of 2013. There is some hope that after the regulatory environment stabilizes, the firm will be able focus on returns, rather than cost management.

My Takeaway

Since WBK was added to the AIM International Fund in late 2015, it has re-focused its efforts on cost management. Considering the economic and political environment, this seems warranted. Although stock returns are lacking, a focus to returns in coming years would be beneficial.  For now, WBK is a victim of its environment, re-focusing efforts on factors it can control (costs).

An AIM Equity Holding: Web.com Group (WEB)) by Andy Reed. “Can WEB's acquisitions move them onward?"

Web.com Group (WEB, $19.45): “Get Caught in this Web!”

 By: Andrew Reed, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

·         Web.com Group, Inc. (NASDAQ: WEB) is a leading provider of website services, enabling small and medium sized businesses to effectively reach consumers and clients, alike. The company does this through a number of solutions, including search engine optimization and website designs, along with a multitude of other ecommerce solutions.

·         WEB’s management team, after a successful analyst day and 3Q earnings report, remains full steam ahead on completing its shareholder-friendly approach to a 2016 described by CEO, David Brown, as “a transition year” for the company.

·         Despite growing pains from the  March 2016 Yodle acquisition, which have been well documented, Q3 non-GAAP EPS ($.76 vs. $.63-.67) and EBITDA margins (26% vs. 22%) came in comfortably above management’s previous estimates.

·         WEB is steadily on its way into an operationally important 2017 with levers to pull, small businesses to serve, and shareholders to please.

Key Points: Web.com, originally added to the AIM Small Cap fund in November of 2016, has been able to keep investors happy over the last two months. With the Q3 earnings beat, and only a slight revenue disappointment, which management attributed mostly to a commoditizing and shrinking DIY portion of the business, the company seems poised to effectively march ahead with recently acquired paid-search algorithm firm, Yodle, Inc. Beyond Yodle’s impressive customer penetration (50,000 small business customers in 250 industries, according to Yodle’s website), its presence also allows Web to expand its recurring revenue stream in the long term in industries such as real estate. Yodle’s real estate platform will allow Web.com to provide more valuable solutions to more clients in a more cost effective manner, with further cuts in sales and marketing expenses expected to aid the margin accelerations.

In addition to business model improvements provided by recent acquisitions, Web.com management remains steadfast in its efforts to borrow and repay responsibly. During Q3 alone, the company reduced its debt burden by $23 million, and has reduced its borrowings related to the Yodle acquisition by $43 million since March (13% of the total purchase price). Looking ahead, management expects to continue these repayments and reiterated guidance for $32 million in total cost synergies from the acquisition. Also announced on the earnings call, the company’s existing $100 million share buyback plan was “renewed”, with another $100 million approved by to Board of Directors, in addition to the $79 million in shares already repurchased since the program began. Opportunistic and responsible cash deployment have Web.com set up well for 2017 and beyond.

Moving into broader industry trends, Web.com finds itself uniquely positioned with its more lucrative and difficult to replicate “do-it-for-me” marketplace. As indicated by management, DIY gets more and more difficult with each passing day, with companies like GoDaddy.com constantly pressured by new entrants. Because of this, there has been a strategic shift away from DIY, which brought a 12% decline in YoY revenue for WEB in Q3 2016. The paring down of the DIY business at the company into more lucrative VAS businesses has hampered short term results; however, should prove effective for both WEB and the clients it seeks to serve.

What has the stock done lately?

Following the Q3 earnings call and subsequent analyst day, WEB’s stock jumped up to its 52-week high of $21.50 just before the new year. Since then, the stock has pulled back ~8%, with investors likely pulling back hoping for more answers regarding company’s integration efforts and results on the Q4 earnings call. As margins continue to improve despite disappointing top line figures, investors will likely seek reassurance that the company’s strong track record of cash flow generation can continue.

Past Year Performance:

The past 365 days have been somewhat of a bumpy ride for Web.com’s common stock. As mentioned previously, the stock bottomed for the year at $13.45, only to rally 57% by the final trading session of 2016. The stock is currently trading at TTM P/E of 12.8x. well below both historical and peer averages.

My Takeaway:

We continue to own the stock, and for good reason. With a quality management team dedicated to the long-term vision of generating positive returns on invested capital and growing investors’ share of the pie, WEB.com continues to successfully navigate a dynamic industry backdrop. While we remain owners, the next two to three quarters will prove important for the company to show that Yodle and other acquisitions can continue to build on already ballooning margins, but not at the cost of becoming too lean. A strong track record of successful acquisitions has us ready to find out where WEB can take us!

An AIM Equity Holding: Beacon Roofing Supply (BECN) by Sarah Hillegass. “Heathy growth ahead? We think so"

Beacon Roofing Supply, Inc. (BECN, $44.00): “Who you gonna call? Beacon Roofing!”

By: Sarah Hillegass, AIM Student at Marquette University

 Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

·         Beacon Roofing Supply, Inc. (NASDAQ: BECN), headquartered in Herndon, VA, is the second largest distributor of residential and non-residential roofing materials in the United States. Beacon reports sales via three segments: residential roofing products (53% sales), non-residential roofing products (32%), and complementary products (15%).

·         The residential roofing industry derives nearly 80% of its demand from re-roofing, which is primarily non-discretionary. Leak damage, storm damage, and old age are the main causes of such demand. Thus, the storms in Texas last summer will continue to cause spillover demand in roofing until April, 2017.

·         BECN operates through a branch based operating model. This allows BECN to use its scale as a national distributor while providing local, customer service. The acquisition of Roofing Supply Group (RSG) in October, 2015 added 85 U.S. branches to make FY16 total to 368 branches.

·         BECN has struggled to breach the $50 mark throughout the last year. Therefore, our original price target of $49 is still within reach and attainable.

·         Due to BECN’s trajectory for continued growth, supported by a historical 12-year sales CAGR of 16.6%, I would recommend a HOLD until the next roofing season.

Key Points: BECN’s fiscal year 2016 ended September 30, 2016 with record results. BECN ended the year operating 368 branches in 46 U.S. states and 6 Canadian provinces, solidifying its position as the 2^nd largest distributor of residential and non-residential roofing materials in the US. Their catalog includes 46,000 products with SKU’s to serve roughly 67,000 customers. 4Q16 net sales were 49.1% above the previous year. BECN reached just over $4B in annual sales for the first time and improved gross margins by 140 bps to 25.7%. BECN’s growth was led by 2.4% existing residential market growth, primarily in the Southwest, successful execution of its RSG acquisition integration, as well as strengthening of its balance sheet through incremental paydowns to affect its debt leverage ratio.

BECN wins the re-roof business for the residential and non-residential segments by differentiating itself to bring more value-added services apart from just providing roofing materials, such as installation, design, and layout services. In 4Q16, the residential roofing segment was the standout performer. This segment is projected to have 2017 organic growth of nearly 2-5%. Organic growth includes all owned branches held for four quarters or more. The organic growth is projected to come from continued storm repair from last summer, future weather related fixtures, and existing home sales. The residential roofing segment has a total addressable market of nearly $15 billion with the four largest distributors having 50% of the market share. 

With further consolidation in the industry through acquisitions, BECN should see stable growth in this segment. Additionally, the non-residential market has long term growth rates of 2-3%, which will be won by providing additional services and cross-selling of products. Per the National Association of Home Builders, approximately 94% of re-roofing demand is non-discretionary, which means when roofs need re-roofing, the wait time is minimal and the price is inelastic. The complementary products segment will be a growth driver in adding more value to roofing projects with siding, insulation, and window installation.

BECN’s Roofing Supply Group acquisition will also contribute to this growth in cross-selling of products, as well as geographic diversification of branches. FY16 saw exceeded cost synergies expectations from the acquisition with an additional $55 million of cost synergies expected for 2017. The cost savings have been the primary contributor to improved margin performance. For example, purchasing synergies led to a 3% product cost decline. Additionally, the acquisition expanded BECN’s geographic capabilities with 85 locations, primarily in key Western and Southern markets, which have the highest growth potential. Furthermore, the expansion into these key markets will allow seasonality to become less harsh as both regions have milder 2Q’s.

Lastly, BECN has benefitted from and will continue to benefit from its initiative to strengthen its balance sheet. BECN’s 2018 goal is to have a debt to leverage ratio of 2x. They have decreased the ratio from 4.3x in October, 2015 because of the RSG acquisition, to 3.3x currently. Further cash generation will be used to decrease this further. Any potential tax reform will most likely benefit BECN’s tax rate as it is currently one of the highest taxpayers at nearly 40%. BECN indicated that any excess cash they could use from lower taxes would be driven right back into the business for future growth, rather than a one-time dividend or stock buyback.

What has the stock done lately?

BECN has volleyed between $40-$50 throughout the last three months, finding resistance near $50. Since the release of FY16 results, BECN has announced three new acquisitions to add to its branch portfolio. In December, BECN announced the acquisition of BJ Supply of Bristol, PA to add complementary branches to the Philadelphia and New Jersey markets. In January, BECN announced one acquisition related to seven branches in the Seattle market and one acquisition, which is an insulation distributor, to add-on to its complementary products segment. Neither of these three most recent acquisitions has made the stock pop however. What may be guiding the stock through these winter months is the seasonal climate. Harsh winter weather crowds the competitive landscape, while mild winter weather will provide for easy year-over-year comps.

Past Year Performance: BECN has substantially outperformed the Russell 2000 index over the last two years. The primary growth driver has been through continued stable market demand and consolidation within the industry. The more accretive acquisitions BECN can undergo, the better its sales and performance will be. The market is highly fragmented with nearly 1,500 players to act as potential acquisitions and room for future growth. Additionally, the continued synergies in cost through the RSG acquisition have been and will continue to be beneficial for margin expansion.

My Takeaway

BECN has a proven track record of successful, accretive acquisitions. In this industry, stable market growth in re-roofing demand and industry consolidation will be key to future growth. The RSG acquisition is a great example of an acquisition executed properly to yield significant cost savings and in turn enhanced margin performance. With the January announcement of the retirement of the longest serving director on BECN’s Board of Directors, Peter Gotsch, there is a slight risk that future growth and expansion opportunities will have different management advice. However, due to BECN’s expertise in acquisitive growth, complemented by organic growth and the development of greenfields, BECN seems poised to continue its healthy growth charge. Therefore, I recommend holding BECN until the next roofing season when future demand can be foretasted.