Morgan Stanley issued a bullish research report on building materials distributor QXO (QXO.US), betting on "industry consolidation + $500 billion revenue prospects".

Senior analyst Christopher Snyder from the financial giant Morgan Stanley has initiated coverage on QXO Inc. (QXO.US) with a rating and target price. He has given the company a "buy" rating and a target price of $35. The analyst emphasizes that the industry in which QXO operates is highly diversified, with significant potential for consolidation and long-term performance growth, providing a favorable positioning for the company's valuation and fundamentals expansion. He also highlights QXO as one of the highest beta stocks in the currently highly valued U.S. stock market. As of last Friday's closing, QXO's stock price was at $22.05. Snyder points out that the company plans to increase its overall revenue to over $50 billion and has the support of the management team, led by Brad Jacobs, who has a proven track record of performance expansion in the industrial sector, creating significant value for shareholders. The analyst mentions that QXO's business model relies on acquiring or assisting companies in acquisitions through the adoption of technology and operational best practices to improve core business, creating a value creation cycle with lower dependence on macroeconomic conditions. With expected significant expansion in equity value, and EBITDA expected to show strong compounded growth at a high rate over the next decade, Snyder believes QXO Inc. offers attractive venture capital return characteristics. He believes that the stock trades at a discount compared to peers, especially considering the structural advantages the company possesses, making it a compelling entry point in its growth story. Validated Script and Repeatable Model Snyder points out that the U.S. industrial distribution industry still has strong consolidation and M&A potential, with no single player having a market share exceeding the mid-single digits. Many smaller competitors lack the capital to invest in technology, presenting a significant opportunity for QXO to leverage scale and efficiency to capture market share. Snyder writes, "Investing in operational efficiency not only reduces the service costs of distributors, but also enhances the profitability of customers, allowing distributors to gain more customers' budget allocations - this is the flywheel effect." QXO plans to continue Jacobs's past successful strategies and repeatable models executed at XPO, United Rentals, and Waste Management: acquiring businesses at lower valuation multiples, integrating them, and improving performance through scale and technology. Snyder states, "Our model estimates show that QXO can increase the equity value of target companies by approximately 125% in the first five years after the acquisition, equivalent to an internal rate of return (IRR) of about 25% annually, which is a truly differentiated source of value creation in the U.S. industrial sector." Snyder emphasizes that this model is not affected by overall macroeconomic conditions and provides long-term growth opportunity for QXO. Currently, the company has annual revenue of approximately $10 billion in a global market of about $800 billion. Public information shows that QXO Inc. is a distribution and consulting company in the U.S. that focuses on roofing, waterproofing, and complementary building materials products, providing professional technical solutions to industrial, distribution, and service customers, including consulting services, professional services, and training and technical support. As for the company's current basic business model, it is a North American building materials distribution platform with a core strategy of "mergers + technology-driven." The primary business is B2B distribution of roofing, waterproofing, and complementary building products. Brad Jacobs, an industrial acquisition expert, leads the company and is integrating highly diversified building materials distribution industry through acquisitions, bringing digitization/AI into inventory, pricing, and e-commerce processes. Beacon Roofing as a Cornerstone QXO Inc. is officially positioned as the "largest publicly traded distributor of roofing, waterproofing, and complementary building products in North America," with business including channel distribution and services of roofing materials, residential waterproofing membranes, seals/insulation, and related complementary products. In April 2025, QXO completed the acquisition of Beacon Roofing Supply for approximately $11 billion. Beacon became its wholly-owned subsidiary, establishing QXO's leading position in the roofing and waterproofing distribution field. The company focuses on the extremely fragmented building materials distribution track of approximately $800 billion market size, emphasizing improving efficiency through technology and operational enhancements to drive integration. Beacon Roofing Supply, with $10 billion in revenue from predominantly demand-driven roofing products, provides a stable foundation for QXO's core strategy. Snyder states, "About 80% of BECN's revenue comes from repairs and replacements (compared to 20% from new construction). Our valuation estimates show that the industry will maintain stable growth in the low to mid-single digits driven by price, bringing higher than expected cash flows and significant opportunities to expand the total addressable market (TAM) through acquisitions." Snyder also points out favorable macroeconomic factors, including the expected bottoming out and recovery of the U.S. construction industry after a recent slowdown, potential ongoing rate cuts by the Federal Reserve in 2026, and potential policies by the Trump administration to increase domestic industrial and manufacturing investments, expand tariffs globally, which could further strengthen QXO's pricing power.