Ferguson (FERG), mcap=$26.6bn, price $126 vs $109

– Retailer of plumbing, HVAC, and building supplies.
– Cheap on current (10x) and normalized (13.5x) earnings.
– Covid-driven housing boom beneficiary.
– Low valuation due to fears about residential end markets – but the company is cheap even assuming margin compression.
– Set to be added to S&P 500 with the expected increase in index ownership.
– 40% of businesses are tied to new construction and 60% are tied to RMI.
– Long-term growth profile at high returns on capital.

– Trades at 11x this year’s earnings and 13.5x normalized earnings power (assuming op margin contraction from 10% to 8.5%).
– During 3 years of GFC, margins were 7.1%, 5.3%, and 4.6% – the magnitude of decline this time should be much softer.

Exp. gain: Not specified.

Full $FERG write-up (free guest account required):

Leave a Comment