Jefferies says specialty plumbing and appliances distributor Ferguson is a high-quality business “poised to take [market] share.” The firm upgraded Ferguson to buy from hold. Its new price target of $181 implies shares rallying 28% from Monday’s close. “FERG is uniquely positioned to service compared to smaller competitors due to its scale & breadth of products,” analyst Philip Ng wrote in a Tuesday note. “FERG should be resilient in a downturn, driven by its pricing power, high variable cost structure and capital light model. FERG’s pricing power & limited exposure to commodity products drive stable gross margins through the cycle.” The analyst added that, while Ferguson holds a top five position across all product categories, it holds less than 25% share in any market — meaning there is significant opportunity to “roll up the industry” Ng also thinks Ferguson is able to beat out competitors by differentiating itself on service, technology and value-add capabilities, rather than price. He added that a “re-rate opportunity” is expected following the divestiture of the company’s European business and primary listing move to the New York Stock Exchange. “The stock has seen technical pressure due to its removal (13% outflow) from European indices & JEF Index strategy team sees the inclusion of the Russell 1000 (potentially in June) and S & P500 translating to 20-25% inflow in purchases,” said Ng. “With the stock trading at a 25% discount to its peers with a comparable return profile, we see the valuation spread narrowing from the US index inclusion & increased US based investor interest & coverage. We believe FERG is due for a catch up trade, and see [long-term] investors gravitating to quality names like FERG as sentiment on housing improves.” Shares have jumped almost 11% in 2023. They are also up 24.3% over the past 12 months. —CNBC’s Michael Bloom contributed to this report.
