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Beacon Roofing (NASDAQ:BECN) has seen estimates for 2013 and 2014 fall recently. A recent downgrade has pushed the Zacks Rank to the lowest level. BECN is a Zacks Rank No. 5 (Strong Sell). It is the Bear of the Day.

Recent Downgrade

The stock fell a significant amount the other day due to a downgrade from Robert W. Baird. The investment firm lowered their rating on the stock to Neutral from Outperform and took their target down to $39 from $42 based on lower estimates. Lowered estimates are a key reason stocks become Zacks Rank No. 5 (Strong Sell).

Company Description

Beacon Roofing Supply, Inc. distributes residential and non-residential roofing materials to contractors, homebuilders, building owners, and other resellers. As of Aug. 9, 2013, it operated through a network of 231 branches in 38 states of the United States, and Canada. Beacon Roofing Supply, Inc. was founded in 1928 and is based in Peabody, Mass.

Earnings History

BECN has hit a rough patch in what is a spotty-to-good earnings history. The last three reports have all come in under the Zacks Consensus Estimate, with the most recent miss being the biggest in quite awhile. The company reported earnings of $0.55 vs. the $0.71 estimate, for a miss of $0.16, or 22% below expectations. On that earnings release the company also lowered guidance, further reducing expectations for the future.

Over the last five quarters, the top line has been challenged as well. While still posting year-over-year growth in the last two quarters, the company has not been able to beat the Zacks Consensus revenue estimate since the March 2012 quarter.

Earnings Estimates Slip

Estimates for BECN have been sliding of late. Starting in April, the 2013 Zacks Consensus Estimate was $1.87, but that soon fell to $1.80 the following month. Estimates dropped to $1.79 in July and are now at $1.55. 2014 Estimates have also been slashed. The year started off with expectations of $2.09. That seems like a lifetime ago, and current estimates are calling for $1.55.

Valuation

The valuation picture for BECN is rather rich given the recent snafu in earnings. A 24x trailing P/E is just slightly lower than the industry average of 26.7x, while the forward P/E of 24x is equal to the industry average. One might expect to see a discount on these metrics given the misses and recent lowering of guidance. The price to book multiple of 2.5x is below the 4.4x industry average, as is the price to sales multiple of 0.8x vs. the 1.1x industry average, so it's not totally out of line.

The Chart

The price and consensus chart really tells the story of what is going on at BECN. The estimates have shown some great growth over the last few years, but the recent spate of earnings misses coupled with lower guidance has turned the estimate lines in the wrong direction. With only one named hurricane and only four more weeks left in storm season, a big driver for this company has turned out to be a real washout.

There are alternative to this supplier of materials to homeowners. Investors may want to look to Lumber Liquidators (NYSE:LL) as it carries a Zacks Rank of No. 1 (Strong Buy).

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Source: Bear Of The Day: Beacon Roofing