Greater Visibility To U.S. Investors Could Improve Ferguson's Valuation

The next year is likely to be a busy one for Ferguson plc (OTCQX:FERGY), as this leading distributor of plumbing and HVAC supplies takes a few more big steps towards remaking itself as a largely U.S. distribution company. Not only is the company expected to dispose of the U.K. operations, but management is also in the early stages of a process that will culminate in Ferguson’s primary listing being in the U.S. – a move that could help shrink some of its historical valuation discount to other primarily U.S. distributors.

While there are ample uncertainties tied to COVID-19 and the recession that has followed, the residential and HVAC sectors have held up better, and that should be a net positive for Ferguson. As time goes on, I expect management to continue leveraging its differentiated combined branch and B2C model to gain share, helped too by an ongoing expansion of its private label offerings. Quality distributors don’t often trade all that cheaply, but Ferguson does look undervalued by the standards of its peer group.

 

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Greater Visibility To U.S. Investors Could Improve Ferguson's Valuation