A Wall Street analyst has high hopes for building products distributor QXO (NYSE: QXO), and investors are taking note.
Shares of QXO traded up 12% as of 10:30 a.m. ET after Wolfe Research set a target price for the stock that is more than 150% above where the shares closed Thursday.
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A very bullish price target
QXO was formed last year by serial entrepreneur Brad Jacobs with a goal of consolidating the building products distribution business. In April, the company closed an $11 billion acquisition of Beacon Roofing Supply and aims to grow revenue from about $10 billion today to $50 billion in the years to come.
Now that the company has an operating business, Wall Street analysts are beginning to chime in. On Friday, Wolfe Research analyst Trevor Allinson initiated coverage on the stock with an “outperform” rating, assigning the stock a $44 price target. For context, QXO shares closed Thursday at $16.75.
Allinson said QXO “offers investors a superior (earnings before interest, taxes, depreciation, and amortization) EBITDA growth story, both through organic EBITDA growth via operational improvements and accretive M&A, led a management team that has a proven value-creation track record across multiple industries.”
The analyst is forecasting QXO to grow EBITDA at a 35% compound annual rate over the next five years, which he notes would be significantly higher than the rest of the industry.
Is QXO a buy?
To be sure, this note is just one analyst’s opinion and is based on anticipation of what is to come and not current business fundamentals. That said, Jacobs’ track record gives a lot of credibility to those expectations.
The CEO has done more than 500 acquisitions in his career, building two of the top 10 Fortune 500 success stories over the last decade in United Rentals and XPO.
Jacobs and his team have a history of using a combination of acquisitions and technology to drive efficiencies, a playbook that Allinson believes can be repeated here to generate both organic and inorganic growth. Last month, QXO completed a secondary offering to replenish its M&A firepower.
Investors need to be aware that past performance is not a guarantee of future success, and that a range of factors including economic headwinds or a fickle M&A market could slow momentum from here. But for those looking for a growth stock in the industrials sector, QXO deserves at least a spot on the watch list.
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Lou Whiteman has positions in QXO and XPO. The Motley Fool recommends XPO. The Motley Fool has a disclosure policy.
