FERG - Ferguson: Good Growth Prospects At Reasonable Valuation

2024-06-26 02:54:06 ET

Summary

• Ferguson plc has strong medium- to long-term growth prospects, driven by non-residential demand, market share gains, and strategic initiatives.
• Margin expansion is anticipated due to pricing execution, cost efficiencies from new MDCs, and easing deflationary comparisons in FY25.
• FERG stock is undervalued compared to peers, with potential for P/E re-rating as growth accelerates and execution remains strong.

Investment Thesis

Ferguson plc ( FERG ) has good growth prospects ahead. The company's revenue growth should benefit from healthy demand in the non-residential end market, driven by secular tailwinds from recent reshoring trends and infrastructure funding. While the residential end market is experiencing headwinds due to high interest rates, it is near the bottom and a potential reversal in the interest rate cycle coupled with long-term tailwinds from a significant underbuild of new homes post the great recession should drive revenue growth in this market in the medium to long term....

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