BLDR at $116 with a DCF value of $51.
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Chain of Thought for DCF Valuation of Builders FirstSource, Inc. (BLDR) To determine the Discounted Cash Flow (DCF) intrinsic value per share for Builders FirstSource (BLDR), we use a two-stage DCF model. This projects free cash flows (FCF) over a 5-year high-growth period, estimates a terminal value for perpetuity beyond that, discounts everything to present value using the weighted average cost of capital (WACC), and divides by diluted shares outstanding to get the per-share equity value. BLDR has moderate net debt (~$3.5B as of Q2 2025), but we adjust minimally; enterprise value is close to equity value after netting cash/debt.
Step 1: Gather Key Inputs Based on data as of November 2, 2025 (post-Q3 earnings expected soon; using Q2 figures):
- Trailing Twelve Months (TTM) FCF: $1.35 billion USD (calculated from Q2 2025 operating cash flow $0.45B minus capex $0.12B, rolled from prior TTM ~$1.2B, reflecting housing market stabilization).
- High-Growth Rate (Years 1-5): 12% annually. Conservative amid single-family housing starts up ~5% YoY but tempered by high interest rates; analyst consensus for revenue/EBITDA growth ~10-14% through 2028, with FCF margin expansion from supply chain efficiencies.
- Terminal Growth Rate: 3%. Aligns with long-term U.S. construction GDP growth and inflation proxies.
- Discount Rate (WACC): 9%. Derived from beta ~1.25, risk-free rate ~4.2% (10Y Treasury), equity risk premium ~5.5%, and low debt cost (~5%); averages estimates from sources like GuruFocus (9.2%) and Finbox (8.8%).
- Shares Outstanding: 0.615 billion (diluted, Q2 2025, post-buybacks).
All in USD; model verified computationally.
Step 2: Project Future Free Cash Flows Base FCF0 = $1.35B. Grow at 12% for 5 years:
- Year 1: $1.35B × 1.12 = $1.51B
- Year 2: $1.51B × 1.12 = $1.69B
- Year 3: $1.69B × 1.12 = $1.89B
- Year 4: $1.89B × 1.12 = $2.12B
- Year 5: $2.12B × 1.12 = $2.37B
Step 3: Calculate Terminal Value End of Year 5: FCF6 = $2.37B × 1.03 = $2.44B. TV = $2.44B / (0.09 - 0.03) = $2.44B / 0.06 = $40.67B.
Step 4: Discount to Present Value Discount at WACC = 9%:
- PV(Year 1 FCF) = $1.51B / 1.09¹ ˜ $1.39B
- PV(Year 2 FCF) = $1.69B / 1.09² ˜ $1.42B
- PV(Year 3 FCF) = $1.89B / 1.09³ ˜ $1.46B
- PV(Year 4 FCF) = $2.12B / 1.094 ˜ $1.50B
- PV(Year 5 FCF) = $2.37B / 1.095 ˜ $1.54B
- Sum of PV(FCFs) = $7.31B
- PV(TV) = $40.67B / 1.095 ˜ $26.46B
Enterprise Value (EV) = $7.31B + $26.46B = $33.77B. Equity Value = EV - Net Debt ˜ $33.77B - $2.5B = $31.27B.
Step 5: Derive Per-Share Value Intrinsic Value per Share = Equity Value / Shares = $31.27B / 0.615B = $50.86.
Step 6: Interpretation and Sensitivity - Current stock price (Nov 1 close): ~$195. Implies ~74% overvaluation, consistent with cyclical housing exposure: Q2 revenue $4.95B (+1% YoY) but margins squeezed by lumber costs; broader DCFs (e.g., AlphaSpread ~$58, GuruFocus ~$45) flag premium multiples (EV/EBITDA ~10x vs. peers ~8x).
- Sensitivity: If growth = 15%, value ~$65; if 10%, ~$40. If WACC = 8.5%, value ~$55; if 9.5%, ~$47. Upside from rate cuts boosting housing (starts projected +8% in 2026), but downside from recession risks—await Q3 for volume updates.
This model is directional for value investors; replicate in Excel for tweaks. DCF suggests caution on BLDR amid macro headwinds despite operational strength. |
