Citi has updated its outlook on Ferguson Plc (NYSE: FERG), increasing the price target to $221 from $203, while maintaining a Neutral rating on the stock.
The revision followed Ferguson's fourth-quarter earnings surpassing expectations and the company providing a fiscal year 2025 guidance that was more optimistic than anticipated.
Ferguson anticipates the underlying market to contract by low-single-digit percentages year-over-year in fiscal year 2025.
However, the company expects price and volume to pick up throughout the year as end-markets show signs of improvement and the effects of commodity deflation are lapped.
Despite anticipated price deflation leading to a slight decrease in operating margin by about 25 basis points at the midpoint, concentrated in the first half of the year, management conveyed increased confidence in the demand outlook for the second half.
In light of the near-term headwinds related to price and volume, Citi has adjusted its EBITDA estimates for Ferguson down by an average of 3% for fiscal years 2025 and 2026.
The firm applied a forward EBITDA multiple of 16.0 times, up from the previous 15.0 times, to account for lower interest rates and improved valuations among peers. This adjustment underpins the new price target of $221.
In other recent news, Ferguson reported steady growth in the face of market challenges. The company's Q4 earnings revealed a modest 1.4% year-over-year increase in revenue, reaching $7.9 billion.
The adjusted operating profit rose by 5.3% to $857 million, and the adjusted diluted earnings per share grew by 7.6% to $2.98. For the fiscal year, Ferguson achieved total revenue of $29.6 billion and generated a robust $1.9 billion in operating cash flow.
Several analyst firms have updated their outlooks on Ferguson. BofA Securities maintained an underperform rating but raised the price target to $185. RBC Capital Markets increased the price target to $219, maintaining an outperform rating.
Baird also maintained an outperform rating and lifted the price target to $225. Wells Fargo (NYSE:WFC), on the other hand, lowered the price target to $225 while keeping an overweight rating on the stock.
InvestingPro Insights
Following Citi's updated outlook on Ferguson Plc (NYSE: FERG), insights from InvestingPro suggest a nuanced perspective on the company's financial health and market position. Notably, Ferguson has seen a significant return over the last week, with a 9.8% price total return, reflecting positive investor sentiment. This aligns with the stock's robust performance, as evidenced by a 36.93% one-year price total return, showcasing the company's strong market presence over an extended period.
Despite analysts' anticipation of a sales decline in the current year, Ferguson's liquid assets exceed its short-term obligations, indicating a solid liquidity position that may help the company navigate the expected market contraction. The company's current market capitalization stands at $41.68 billion, with a price-to-earnings (P/E) ratio of 22.61, suggesting that the stock is trading at a premium relative to near-term earnings growth. Investors may want to consider this alongside the price-to-book (P/B) ratio of 7.54, which is considered high, indicating that the market values the company's assets at a significant markup from their accounting value.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics to evaluate Ferguson's performance and potential investment opportunities. With more tips available on the platform, investors can access a deeper dive into the company's financial outlook and strategic positioning.
For further details and a full suite of InvestingPro Tips, visit: https://www.investing.com/pro/FERG.
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