Last Update 07 Nov 25
Fair value Increased 0.67%FERG: Ongoing Share Gains And Sector Recovery Will Support Steady Performance
Ferguson Enterprises' analyst price target was modestly increased from $255.30 to $257.00, as analysts cited the company's strong organic growth, robust performance in non-residential markets, and continued share gains despite challenges in the residential and HVAC sectors.
Analyst Commentary
Following Ferguson Enterprises' latest quarterly results, a number of bullish analysts have raised their price targets, citing strong performance in key areas and ongoing share gains. At the same time, some caution remains due to specific sector headwinds and mixed outlooks for certain markets.
Bullish Takeaways- Bullish analysts highlight Ferguson's robust organic growth, driven in large part by outperformance in non-residential markets and positive pricing trends.
- The company's continued share gains, even amid challenging end markets, are seen as a testament to its strong business model and execution.
- Several note Ferguson's ability to capture large projects and maintain a balanced mix across commercial, civil, and infrastructure verticals. These factors help support valuation upgrades.
- Expectations for an eventual industry recovery are prompting some to assign a higher valuation, reflecting confidence in the company's potential for group-leading growth when residential and non-residential cycles improve.
- Bearish analysts remain cautious about persistent headwinds in new residential construction and HVAC sectors, which are likely to weigh on near-term results.
- Some are adopting more conservative margin forecasts, especially for the latter half of fiscal 2025. This could temper earnings upside.
- While share gains are recognized, the uncertain pace and breadth of an end-market recovery inject an element of risk to forward-looking estimates.
What's in the News
- Ferguson Enterprises completed the repurchase of 26,779,484 shares, representing 12.74% of its outstanding shares for $4.04 billion as part of its ongoing share buyback program. (Key Developments)
- The Board amended and restated the company’s bylaws to establish its fiscal year-end as December 31, aligning with a shift in financial reporting. (Key Developments)
- The company's fiscal year-end will change from July 31 to December 31. There will be a five-month transition period in 2025, enabling reporting on a calendar year basis starting January 1, 2026. (Key Developments)
- Ferguson Enterprises issued guidance for calendar year 2025, expecting mid-single digit growth in net sales. (Key Developments)
Valuation Changes
- Fair Value Estimate has risen slightly, increasing from $255.30 to $257.00 per share.
- Discount Rate edged up marginally from 8.13% to 8.14%.
- Revenue Growth projection remains essentially unchanged at 4.76%.
- Net Profit Margin estimate is steady, holding at roughly 6.78%.
- Future P/E Ratio has increased incrementally from 24.92x to 25.09x.
Key Takeaways
- Strategic investments and geographic expansion in HVAC and Waterworks segments are set to drive revenue and capture market share in a fragmented industry.
- Cost reduction, share repurchase, and digital initiatives are expected to enhance profitability, earnings per share, and customer engagement.
- Execution risks and deflation could hinder margin growth, with foreign exchange fluctuations further affecting international revenue, amid pressured residential demand and competitive pricing.
Catalysts
About Ferguson Enterprises- Distributes plumbing and heating products in the United States and Canada.
- Ferguson's strategic investments in its HVAC business, including geographic expansion and acquisitions, are expected to drive revenue growth. The focus on dual trade conversions and the private label HVAC line, Durastar, aims to capture market share in a fragmented industry and positively impact future revenue and earnings.
- Positive growth prospects in the Waterworks segment due to robust activity in public works and infrastructure projects are expected to boost revenue. Ferguson’s involvement in large capital projects positions it well for continued growth in this diversified segment, which should help improve margins as the business scales.
- The ongoing $1 billion increase in Ferguson's share repurchase authorization indicates confidence in the underlying business and shareholder value creation, suggesting potential improvements in earnings per share (EPS) as the share count decreases.
- Ferguson is focusing on cost reduction and efficiency improvements in noncustomer-facing roles to streamline operations and increase speed. These actions are expected to enhance net margins and improve overall profitability over time.
- Continued investment in digital and unified customer experiences, such as the Ferguson Home initiative, aims to enhance customer engagement and sales across residential trade plumbing and digital commerce, positively impacting future revenue growth and potentially improving margins through increased customer retention.
Ferguson Enterprises Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Ferguson Enterprises's revenue will grow by 6.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from 5.3% today to 6.5% in 3 years time.
- Analysts expect earnings to reach $2.4 billion (and earnings per share of $12.65) by about September 2028, up from $1.6 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, down from 28.0x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 22.0x.
- Analysts expect the number of shares outstanding to decline by 1.77% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.
Ferguson Enterprises Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Persistent commodity-led deflation has negatively impacted gross margins, reducing operating margins and earnings.
- Continued weaker demand in residential end markets might impede revenue growth, particularly due to subdued new construction and repair markets.
- Execution risks linked to ongoing growth investments and market expansions, such as the HVAC counter expansions and large capital projects, could lead to increased operational costs without a guaranteed return on investment, affecting net margins.
- Competition and price pressure from deflation have driven the need to balance market share gains against profitability, potentially impacting profit margins and earnings overall.
- Foreign exchange rate fluctuations have adversely affected revenue growth, particularly in markets outside the U.S., such as Canada, which includes an observed impact on top-line growth.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $235.947 for Ferguson Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $280.0, and the most bearish reporting a price target of just $180.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $36.5 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 8.2%.
- Given the current share price of $228.23, the analyst price target of $235.95 is 3.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.