DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.11January2019Americas/UnitedStatesEquityResearchTradingCompanies&DistributorsDistributorsINITIATIONResearchAnalystsSusanMaklari2123253134susan.maklari@credit-suisse.comChristopherKalata2123256654christopher.kalata@credit-suisse.comAmandaLuper2123252690amanda.luper@credit-suisse.comStuckintheMiddle;InitiatingCoverageofFBM&BMC■StockstoReflectModerationinHousing:Inourview,FoundationBuildingMaterialsandBMCwillrealizeincreasingscalethroughorganicandM&Aexpansion,whichwouldenablethemtoleveragegreaterpurchasingpower.Atthesametime,weexpectcompany-specificinitiativesaroundoperatingefficienciesandcostcuttingeffortswillfurthersupportmarginexpansion.Finally,cashflowisfocusedondeleveragingandacquisitions,thoughBMChasalsoannounceda$75mnbuybackauthorizationgiventhedeclineinitsvaluationin2018.Despitetheseefforts,welookformoderatinghousingactivityandanuncertainmacrobackdroptoleavethestocksrangebound.Assuch,weareinitiatingcoveragewithNeutralratings,awaitingabetterentrypoint.■FocusonProfitabilityWillHelpOffsetLowerVolumes:Althoughthecompanies'top-linegrowthhasexceededtheindustry,theirmarginshavelagged.Inresponse,botharefocusedondeliveringoperatingefficienciesandcost-cuttinginitiativestodriveprofitability,evenassalesmoderate.Inourview,theseeffortssuggestEPScanexpandeveninaslowergrowthenvironment.Weforecasta~50bpsriseinEBITmarginsin2019.■CashFlowsSupportStrategicInitiatives,ShareholderReturns:WeforecastanaverageFCFyieldof12%in2019,whichweexpectbothcompanieswillusetowardstrategicplansaswellasshareholderreturns.Withanetdebt-to-EBITDAratioof4.9x,Foundationisalsofocuse...
