Ferguson Enterprises (NYSE: FERG)
Quality Value Investing Research Report | $FERG Updated Coverage | October 2024
In this updated coverage research report, we reexamine the QVI Real-Time Stock Picks industrials sector holding, Ferguson Enterprises — FERG 0.00%↑ — to see if it continues to meet Quality Value Investing’s criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.
Ferguson Enterprises | Current Wealth
Value Proposition
Ferguson Enterprises is a dividend-paying mid-cap stock in the industrials sector’s trading companies & distributors industry. It was added to the QVI Real-Time Stock Picks on August 2, 2023, at a $156.51 cost basis per share, adjusted for dividends.
Ferguson Enterprises Inc. distributes plumbing, heating, and air conditioning products in the United States and Canada. The company was founded in 1953 and is headquartered in Newport News, Virginia, USA.
On August 1, 2024, as part of a corporate reorganization, the company, formerly known as Ferguson plc, established Ferguson Enterprises, Inc. as the new parent company and moved its headquarters from Great Britain to the USA.
Economic Moat
Morningstar assigns Ferguson a narrow moat rating based on its view that North America’s largest industrial and construction distributor is a leading player in many of its end markets with particular strength in plumbing, water infrastructure, and heating, ventilation, and air conditioning products.
QVI’s Value Proposition Elevator Pitch for FERG
Ferguson is North America’s largest heating, ventilation, and air conditioning distributor. Its stock price has a long history of outperforming its sector and the broader market.
QVI’s value proposition rating for Ferguson Enterprises: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the table below, Ferguson Enterprises’ trailing three-year annualized revenue growth was high-single-digit positive, underperforming the S&P 500 topline growth of 18.6%. Moreover, the company’s negative revenue growth of -0.33% lagged the broader market’s +4.6% for the most recently reported twelve months.
Further down the income statement, Ferguson had a positive mid-single-digit net profit margin from a 30.55% gross margin, underperforming the S&P 500’s net of 10.80% from a gross of 40.70%.
Returns on Equity and Invested Capital
Ferguson’s senior management produced a return on equity, or ROE, double QVI’s targeted threshold and the S&P 500’s ROE of 17.40%.
Stock buyback programs often elevate ROE. For example, Ferguson announced in July 2024 a repurchase of over 65,000 shares in connection with its current $4 billion repurchase program.
Ferguson’s return on invested capital, or ROIC, outperformed QVI’s threshold while lagging the broader market’s 22.5% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are above-average capital allocators (Source of WACC: GuruFocus).
QVI’s business fundamentals rating for Ferguson Enterprises: Bullish.
Next, we’ll look at the company’s enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.
Unless noted, all data presented is sourced from Charles Schwab & Co. as of the market close on October 8, 2024, and intended for illustration only.
Disclosure: As of the date of this research report, I/we had no beneficial position in FERG common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider, as appropriate, consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
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