On Friday, Loop Capital made adjustments to its outlook on GMS Inc . (NYSE:GMS) shares, a leading North American distributor of gypsum wallboard and suspended ceiling systems, by reducing the company's price target. The new price target is set at $85.00, decreased from the previous $100.00, while the firm maintained a Hold rating on the stock.
The decision followed GMS's announcement of a miss in its fourth-quarter 2024 financial results, which was attributed to significant gross margin headwinds. These challenges were primarily due to steel framing price deflation and pressure on wallboard margins. The company struggled to pass along price increases from manufacturers that were introduced in March.
GMS acknowledged the difficulty in adjusting to the manufacturer price increases, citing that a portion of distributors had not anticipated these increases to be effective and also pointed to a variable demand environment. The company now projects a six-month period, longer than the historical three to six months, to fully compensate for the manufacturer's pricing changes.
In terms of steel framing, GMS anticipates low teens pricing declines in the first quarter of 2025, with expectations of price stabilization following manufacturer price increases set for July. However, Loop Capital expressed skepticism regarding the stabilization of steel framing prices in the second quarter of 2025, noting that steel prices have continued to decline quarter-to-date.
Loop Capital's analysis suggests that the ongoing pricing challenges and a mixed outlook on market fundamentals will likely prevent GMS from achieving its anticipated 32% gross margin levels in the second quarter of 2025.
The revised price target of $85 represents a $15 decrease and is based on seven times the forecasted fiscal year 2025 EBITDA. The firm's stance remains cautious due to the persistent margin headwinds facing GMS.
In other recent news, GMS Inc. has been the subject of several significant developments. Baird has revised its price target for GMS to $100, maintaining an outperform rating despite the company's slight miss in 4QF24 consensus estimates and softer guidance for 1QF25.
Factors influencing this decision include deflation in steel pricing, a slower than expected increase in wallboard prices, and a delay in the anticipated improvement of cyclical end markets.
RBC Capital has also adjusted its price target for GMS, reducing it from $92.00 to $85.00 due to anticipated margin pressures in steel and wallboard segments and a less optimistic outlook for multifamily housing starts. This has led to a 2% reduction in the company's FY'25 EBITDA forecast, now set at $610 million.
In addition, GMS is set to acquire several Canadian entities, including Yvon Building Supply, Inc., for a potential sum of CAD$196.5 million, pending regulatory approval. Yvon, a provider of building materials, reported net revenues exceeding CAD$190 million in the fiscal year ending February 2024. Upon completion, Yvon will retain its brand identity and collaborate with GMS Canada's Watson and Blair brands locally. These are the recent developments for GMS.
InvestingPro Insights
As Loop Capital revises its price target for GMS Inc., current data from InvestingPro provides additional context for investors considering the stock. With a market capitalization of $3.36 billion and a P/E ratio standing at 13.32, GMS shows a valuation that may catch the attention of value-oriented investors. It's notable that two analysts have revised their earnings upwards for the upcoming period, as per InvestingPro Tips, which suggests a positive sentiment on the company's earnings potential.
Investors should be aware of the stock's volatility, as indicated by recent price movements. However, GMS's fundamentals offer some reassurance; the company's liquid assets surpass its short-term obligations, and analysts predict profitability this year, aligning with the company's performance over the last twelve months. Additionally, GMS has delivered a high return over the last decade and a strong return over the last five years. On the downside, GMS does not pay a dividend to shareholders, which might be a consideration for income-focused investors.
For those looking to delve deeper into GMS's financial health and future prospects, InvestingPro provides even more in-depth analysis and tips. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and access the full range of insights, including several additional InvestingPro Tips that can help guide investment decisions.
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