Ferguson Executing Well In A Hot Residential Market

 

A hot U.S. renovation/remodel market and strong execution through the challenges of the pandemic have served Ferguson (FERG) well since my last update, with the shares returning more than 50% versus a little more than 30% for the S&P 500. That’s also not a bad performance relative to other distributors, with SiteOne (SITE) and Builders FirstSource (BLDR) doing even better, while Pool (POOL) has done about as well and Watsco (WSO) hasn’t quite kept pace.

Management has continued to do exactly what they said they would do – selling the less profitable U.K. business and pursuing the plan to become a U.S. business, including a dual listing earlier this year, a shift to U.S. GAAP for FY’22, and then a shift toward the U.S. listing being the primary listing for the company. On top of that, as the world gets back to something closer to normal, I would expect ongoing reacceleration in the serial tuck-in M&A program.

I like the business, but the stock valuation is a little more challenging now. The DCF-based valuation doesn’t suggest exceptional undervaluation, though I do still see upside on a multiples-based approach. Given healthy underlying markets and ongoing growth opportunities, I still lean favorably, but not quite as strongly as back in October of last year.

 

Click the link to read the full article: 

Ferguson Executing Well In A Hot Residential Market