On Friday, RBC Capital adjusted its stance on GMS Inc . (NYSE: NYSE:GMS) shares, lowering the price target from $92.00 to $85.00, while maintaining a Sector Perform rating. The decision comes in response to anticipated margin pressures in the steel and wallboard segments, as well as a less favorable outlook for multifamily housing starts.
The analyst from RBC Capital noted that the forecast for the company's FY'25 EBITDA has been reduced by 2% to $610 million. This revision follows a weaker than expected first-quarter guide, which highlighted near-term margin pressures as a significant concern. The revised estimates also factor in potential risks associated with multifamily housing declines and the unpredictability of steel pricing and SG&A leverage.
Despite the reduction in wallboard price estimates, the analyst believes that GMS's ability to maintain some price resiliency and a partial recovery in gross margins is not as negative as initially anticipated. This assessment suggests that the situation may be moderately better than first thought, offering a glimpse of stability for the company.
The updated price target of $85 reflects the new expectations, marking a decrease from the previous target of $92. The Sector Perform rating suggests that RBC Capital views GMS's stock as likely to perform in line with the expectations for the sector as a whole.
GMS Inc., a distributor of wallboard and suspended ceiling systems, is now navigating through a period marked by challenges in the steel and wallboard markets. The company's ability to adapt to pricing dynamics and manage costs will be critical as it moves forward in the current economic landscape.
In other recent news, GMS Inc. has announced plans to acquire several Canadian entities, including Yvon Building Supply, Inc. and related companies. The purchase, which is subject to regulatory approvals, is set to be finalized in July 2024 for a potential sum of CAD$196.5 million.
Yvon, a provider of building materials across Greater Toronto and Ontario, reported net revenues exceeding CAD$190 million in the fiscal year ending February 2024. GMS's CEO, John C. Turner, Jr., expressed his eagerness for this expansion into southern Ontario and the integration of Yvon's experienced team.
The acquisition aligns with GMS's growth strategy, particularly in the burgeoning Greater Toronto Area. Tom Scott, President of Yvon, views the merger as a chance for growth and enhanced customer service.
Upon completion, Yvon will retain its brand identity and leadership, while collaborating with GMS Canada's Watson and Blair brands locally. These developments are part of the company's recent activities.
InvestingPro Insights
As GMS Inc. (NYSE: GMS) faces industry headwinds, investors may find solace in recent positive indicators. According to InvestingPro, two analysts have revised their earnings upwards for the upcoming period, suggesting that the company's performance could surpass current expectations. This optimism is supported by GMS's solid fundamentals, with a P/E Ratio at 13.32 and an even more attractive adjusted P/E Ratio for the last twelve months as of Q3 2024 at 11.28, indicating potential undervaluation relative to earnings.
Additionally, GMS's liquid assets exceed its short-term obligations, providing the company with financial flexibility in uncertain times. This is a crucial factor when considering the company's ability to maintain operations and invest in growth despite market volatility. Moreover, the company's stock price movements have been quite volatile, which could present opportunities for investors with a tolerance for risk and an eye for timing market entries and exits.
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