Hirurg/E+ via Getty Images
FirstService (NASDAQ:FSV) is an essential outsourced property service provider in North America. It has acquired Roofing Corp of America which I believe can act as primary catalyst to growth of the company by expanding its geographic footprint and customer base.
FSV deals in the essential outsourced property services sector mainly in the North American market. It serves its customers in two operating segments: FirstService Residential and FirstService Brands. The FirstService Residential segment mainly provides various property management services across a wide geographic region to various clients comprising homeowner associations, co-operatives, active adult and lifestyle communities, master-planned communities, and other residential developments governed by multi-unit residential community associations and or common interest. It operates approximately 8,700 communities, constituting over 4 million residents. It offers several ancillary services: a full-service swimming pool, on-site staffing for building engineering and maintenance, security, and a front desk. These services are mainly offered under contract with a fixed monthly fee. FirstService Residential contributed approximately 47.31% to the company's total revenues in 2022. The First Service Brands segment operates and offers essential property services to commercial and residential customers. It deals in commercial and residential restoration, custom-designed and installed closets, floor covering design and installation services, painting, home inspection services, home storage solutions, and fire protection and related services. This division represented approximately 52.69% of the firm's earnings. The company has five franchise networks: Paul Davis Restoration, CertaPro Painters, Pillars to Post Home Inspectors, California Closets, and Floor Coverings International.
Revenue Trend of FSV (Investor Presentation: Slide No: 5)
The property management services market experienced downturn during the Covid-19 pandemic and later due to inflationary pressures. However, the company has maintained its upside and managed consistent revenue growth. The industrial scenarios are changing slowly as economic conditions are stabilizing steadily. The housing sector is estimated to expand in the next year. As per National Association of Realtors, existing home sales can be boosted by 13.5% YoY from 4.10 million to 4.71 million. I think this builds a great opportunity for the company which can induce significant demand for its services. In addition, the trends in the development of homeowner associations are highly positive and indicate an upside which is also one of the growth factors for the company. Identifying these scenarios, FSV has recently announced the acquisition of Roofing Corp of America, for a transaction price of $413 million which is commercial roofing firm in North America. This addition can highly benefit the company in increasing its capabilities in maintenance, property repair, and restoration. Roofing Corp offers end-to-end roofing services, comprising new roof installations, re-roofing, and repairs & maintenance to building owners, HOAs, and property & facility managers. It generates $400 million in annual revenues. I believe this deal can act as catalyst to accelerate the company's growth as the acquired firm has a significant scale, broad product offerings, and geographic footprint which can help the company capture additional market share and increase its profitability by adding more customers to its portfolio. In addition, Roofing Corp is a competitive player in the North American market which can help FSV to create its strong presence and increase its market penetration which can further boost its revenues.
The company has consistent distributions which indicates its strong positioning. It paid a $0.225 dividend in each of the four quarters of the current year, which makes the annual payout $0.9 and represents a yield of 0.56%. This dividend yield makes the company a good stock, especially for risk-averse and retired investors who are seeking fixed regular income along with capital appreciation. I believe that its expansion activities can further boost its cash flows and we can expect increased returns in the next year.
The demand for the company's services is highly related to market conditions such as resale rates, property values, and liquidity for real estate transactions. A market that has high resale rates presents a good opportunity for the company as demand for its services such as painting, closet installation, storage solutions, and home inspection increases. However, if real estate industry slows down due to economic downturns, it can reduce transactions and result in low spending by homeowners on such additional services which might further deteriorate demand for FSV's solutions and lead to contraction of its profit margins.
The industry was facing several headwinds due to macroeconomic pressures however, it is steadily showing signs of recovery. To cater to this growing demand, FSV has recently acquired Roofing Corp of America which can boost its profitability by strengthening its service capabilities and increasing its customer base. After considering all these factors, I am estimating an EPS of $5.79 for FY2024 which gives the forward P/E ratio of 28.07x. After comparing forward P/E ratio of 28.07x with the sector median of 35.47x, we can conclude that the company is undervalued. I think the firm can potentially grow in the next year as a result of positive demand in the industry and its recent acquisition which can help it to trade above its current P/E ratio. I estimate that the company might trade at a P/E ratio of 34.49x in 2024, giving the target price of $199.69, which is a 22.86% upside compared to the current share price of $162.53. A weaker real estate market can affect the financial performance of the company during adverse economic conditions. I think in that case, it can contract the profit margins and EPS of the company.
Scenario
EPS Estimates
P/E Ratio Estimates
Target Price
Best case
$5.79
34.49x
$199.69
Bear case
$5.67
34.36x
$194.82
I believe in the bear case scenario of reduced sales due to adverse industry conditions, the EPS of FY2024 might be $5.67, and estimate that the company might trade at a P/E ratio of 34.36x, which gives a target price of $194.82, representing an upside of 19.86%.
The company is experiencing positive growth which is reflected in its revenue upside. I believe it can sustain this growth for a longer period due to the rebound of industry demand combined with the company's recent acquisition which can potentially increase its profitability by expanding its customer base. However, it is exposed to the risk of cyclicity which can contract its profit margins. It also pays consistent dividend. The stock is currently undervalued and investors can expect healthy 20%-23% growth from current price levels as result of its significant portfolio expansion. Taking into account all the above factors, I assign a buy rating to FSV.
- Alpena family overjoyed to be chosen as Level Up Roofing winner - Alpena News - March 31st, 2024 [March 31st, 2024]
- Honest Abe Roofing planning new location in Newburgh - 14 News WFIE Evansville - March 31st, 2024 [March 31st, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Sunny Skies, High Near 77 On Saturday - SpaceCoastDaily.com - March 31st, 2024 [March 31st, 2024]
- PHOTOS: Roofing Added to The Cake Bake Shop at Disney's BoardWalk - WDW News Today - March 31st, 2024 [March 31st, 2024]
- Trusted Roofing in Seattle and Surrounding Areas, Orca Roofing & Exteriors Offers Guidance to Extend a Roof's Lifespan - GlobeNewswire - March 31st, 2024 [March 31st, 2024]
- Roofing manufacturer IKO breaks ground on Clay County production plant | Jax Daily Record - Jacksonville Daily Record - March 31st, 2024 [March 31st, 2024]
- Level Up Roofing to Build New Roof for Local Family Free of Charge WBKB 11 - WBKB-TV - March 31st, 2024 [March 31st, 2024]
- Cervices LLC helps Customers with the Roofing, Gutters, and Siding Restoration Process - WHAS11.com - March 31st, 2024 [March 31st, 2024]
- Shade trees and reflective roofs: US advises the world on heat - E&E News by POLITICO - March 31st, 2024 [March 31st, 2024]
- River Sea Network and Pearl Street Capital Partners Form Aligned Exteriors Group, a Residential Roofing and Exterior ... - PR Newswire - March 31st, 2024 [March 31st, 2024]
- Monroe County deputies looking for roofing contractor with felony warrants - 41 NBC News - March 31st, 2024 [March 31st, 2024]
- Rust-Oleum Elevates Service Standards with Timely Distribution Solutions for Roofing Industry - Business Wire - March 31st, 2024 [March 31st, 2024]
- Elevate Your Sales Skills with BRS Roofing Supply's Exclusive Bootcamp Featuring Expert Taylor McCarthy - PR Web - March 31st, 2024 [March 31st, 2024]
- Council approves Better Together roofing bids - LimaOhio.com - LimaOhio.com - March 31st, 2024 [March 31st, 2024]
- Get your roof replaced or fixed with the Pyramid Roofing Company - KOLR - OzarksFirst.com - March 31st, 2024 [March 31st, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Sunny Skies, High Near 84 On Wednesday - SpaceCoastDaily.com - March 31st, 2024 [March 31st, 2024]
- 5 Milwaukee Tools That Will Come In Handy For Roofing Jobs - SlashGear - March 31st, 2024 [March 31st, 2024]
- Colony Roofers Unveils New Office in Tampa, Florida - PR Newswire - March 31st, 2024 [March 31st, 2024]
- They took advantage of me: Ontario man warns of alleged fake roofing crew - Global News - March 31st, 2024 [March 31st, 2024]
- Insufficient Growth At Beacon Roofing Supply, Inc. (NASDAQ:BECN) Hampers Share Price - Simply Wall St - March 23rd, 2024 [March 23rd, 2024]
- Guardian Roofing prepares Houston Homes for Spring with Comprehensive Roofing Renewal Services - PR Newswire - March 23rd, 2024 [March 23rd, 2024]
- Hopkinton couple face charges of mail and wire fraud from AG's office - MetroWest Daily News - March 23rd, 2024 [March 23rd, 2024]
- Vote for the DC Roofing 321preps Athlete of the Week, March 11-16 - Florida Today - March 23rd, 2024 [March 23rd, 2024]
- Sponsored: Teague Roofing - KY3 - March 23rd, 2024 [March 23rd, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Sunny Skies, High Near 78 On Thursday - SpaceCoastDaily.com - March 23rd, 2024 [March 23rd, 2024]
- GAF to Expand Residential Roofing Operations with New Kansas Facility - Roofing Contractor - March 23rd, 2024 [March 23rd, 2024]
- Scientists Searching Roofs of Ancient Cathedrals for Strange Cosmic Dust - Futurism - March 23rd, 2024 [March 23rd, 2024]
- GAF to Expand Residential Roofing Operations With New Manufacturing Facility in Newton, Kansas - Yahoo Finance - March 23rd, 2024 [March 23rd, 2024]
- Covington County Courthouse getting 2nd new roof in 3 years - WDAM - March 23rd, 2024 [March 23rd, 2024]
- VIDEO: How the FCC's Consent Ruling Will Impact Your Roofing Business - Roofing Contractor - March 23rd, 2024 [March 23rd, 2024]
- Governor Kelly Announces North America's Largest Roofing Manufacturer to Invest More than $300M; Create More ... - Sunflower State Radio - March 23rd, 2024 [March 23rd, 2024]
- Nordea Investment Management AB Sells 3685 Shares of Beacon Roofing Supply, Inc. (NASDAQ:BECN) - Defense World - March 23rd, 2024 [March 23rd, 2024]
- Your chance to win a roof, repair or replacement - ABC15 Arizona in Phoenix - March 23rd, 2024 [March 23rd, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Sunny Skies, High Near 67 On Tuesday - SpaceCoastDaily.com - March 23rd, 2024 [March 23rd, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Mostly Sunny Skies, High Near 87 On Sunday - SpaceCoastDaily.com - March 23rd, 2024 [March 23rd, 2024]
- The other avalanche: Roofs heavy with snow in Colorado create danger - CBS Colardo - March 23rd, 2024 [March 23rd, 2024]
- Attleboro High track, roofs at two other schools need repairs - The Sun Chronicle - March 23rd, 2024 [March 23rd, 2024]
- Learn when to replace your roof - KSHB 41 Kansas City News - March 23rd, 2024 [March 23rd, 2024]
- Roofing Tiles Market: Projected to Reach $46.97 Billion by 2030 with Global Growth Trends As Revealed In Ne... - WhaTech - March 23rd, 2024 [March 23rd, 2024]
- Harness Roofing and Waterproofing, GAF Partner to Protect Roof of Ozark Share & Care - Roofing Contractor - January 5th, 2024 [January 5th, 2024]
- International Roofing Expo 2024 Champions Hispanic Roofing Community Through Strategic Partnerships and ... - Yahoo Finance - January 5th, 2024 [January 5th, 2024]
- Roof tune-up from a family-owned roofing company - ABC15 Arizona in Phoenix - January 5th, 2024 [January 5th, 2024]
- Ohio Roofing Contractor Settles with DOL, Agrees to Pay $730000 and Enhance Safety Measures - Occupational Health and Safety - January 5th, 2024 [January 5th, 2024]
- Realtors' group honors Patriot Roofing - Greater Wilmington Business Journal - January 5th, 2024 [January 5th, 2024]
- Florida homes with roofs built after 2015 could be more likely to survive major hurricanes: FEMA report - FOX 13 Tampa - January 5th, 2024 [January 5th, 2024]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Mostly Skies, High Near 69 On Thursday - SpaceCoastDaily.com - January 5th, 2024 [January 5th, 2024]
- Roofing Accident Starts Fire at University of Oklahoma - Roofing Contractor - January 5th, 2024 [January 5th, 2024]
- VIDEO: Keeping Subcontractors Safe on the Roof - Roofing Contractor - January 5th, 2024 [January 5th, 2024]
- Year In Review Updates On The Top Stories From 2023: Certified Roofers Give Back To The Community In The New ... - Osprey Observer - January 5th, 2024 [January 5th, 2024]
- Roofing with Integrity | Roofing Contractor - Roofing Contractor - January 5th, 2024 [January 5th, 2024]
- Heartland Construction & Roofing Sets Eyes on Tennessee Expansion - BNN Breaking - January 5th, 2024 [January 5th, 2024]
- Local family wins roofing giveaway | Community | lufkindailynews.com - Lufkin Daily News - January 5th, 2024 [January 5th, 2024]
- Roofing firm fined for repeated safety violation in Richmond - Richmond News - January 5th, 2024 [January 5th, 2024]
- Plaquemine City Hall repairs scheduled to begin in early January - Post South - January 5th, 2024 [January 5th, 2024]
- Roofing Incident Leaves Four Families Homeless in Orlando - BNN Breaking - January 5th, 2024 [January 5th, 2024]
- M&M Roofing Gifts East Texas Family with New Roof for Their Home - kicks105.com - January 5th, 2024 [January 5th, 2024]
- Calculator.io launches new calculator for roofing projects - World Construction Network - January 5th, 2024 [January 5th, 2024]
- Roofing firm faces $34K fine - The Courier - January 5th, 2024 [January 5th, 2024]
- Houston veteran homeowner awarded new roof through Beacon of Hope - CW39 Houston - January 5th, 2024 [January 5th, 2024]
- Roofing contractor arrested on racketeering allegations following years-long ANF investigations - Atlanta News First - December 28th, 2023 [December 28th, 2023]
- Mitchell Roofing and Siding owner arrested on drug charges; federal warrant remains sealed - KMIT - December 28th, 2023 [December 28th, 2023]
- Mitchell Roofing and Siding owner arrested, business searched - KELO - December 28th, 2023 [December 28th, 2023]
- Top 10 Largest Roofing OSHA Penalties of 2023 | Roofing Contractor - Roofing Contractor - December 28th, 2023 [December 28th, 2023]
- One person in custody following federal investigation Thursday at Mitchell roofing business - Mitchell Republic - December 28th, 2023 [December 28th, 2023]
- GORILLA ROOFING WEATHER REPORT: Forecast for Brevard Calls for Showers, High Near 78 On Tuesday - SpaceCoastDaily.com - December 28th, 2023 [December 28th, 2023]
- Homeowner Challenges Increase in Home's Taxable Value Tied to New Roof - Roofing Contractor - December 28th, 2023 [December 28th, 2023]
- Dunes Point Capital, LP Announces the Formation of Roofing Services Solutions, LLC - Roofing Contractor - December 28th, 2023 [December 28th, 2023]
- Great Day Improvements Acquires Home Performance Alliance - Roofing Contractor - December 28th, 2023 [December 28th, 2023]
- Mitchell roofing business owner arrested by ATF and allegedly hired hitman - mykxlg.com - December 28th, 2023 [December 28th, 2023]
- Seal Your Peace Of Mind: Preventing And Repairing Leaks With August Roofing & Solar - KHTS Radio - December 28th, 2023 [December 28th, 2023]
- Chamber Ribbon-Cutting at A1 Roofing - Newport This Week - December 28th, 2023 [December 28th, 2023]
- The Role of Flexible Roofing Membranes in Sustainable Building Design - ArchDaily - December 28th, 2023 [December 28th, 2023]
- Roofing Has Second Highest Workplace Fatality Rate in the U.S. - Roofing Contractor - December 28th, 2023 [December 28th, 2023]
- Roofing companies talk increase in call volume after severe weather - WBTW - December 28th, 2023 [December 28th, 2023]
- Get Your Home Remodeled in the New Year with R&B Roofing and Remodeling - WHAS11.com - December 28th, 2023 [December 28th, 2023]
- Commercial Roofing: A guide to hiring the professionals - RealtyBizNews - December 28th, 2023 [December 28th, 2023]
- Is Beacon Roofing Supply Inc (BECN) the Top Pick in the Building Products & Equipment Industry? - InvestorsObserver - December 28th, 2023 [December 28th, 2023]
- Photo: Repairing the roof - Lewiston Sun Journal - December 28th, 2023 [December 28th, 2023]
- Roofers LLC Celebrates Its 40th Year in Roofing - Yahoo Finance - April 29th, 2023 [April 29th, 2023]
- Pennsylvania Roofing Contractor Charged with 18 Counts of ... - Roofing Contractor - April 29th, 2023 [April 29th, 2023]