On Wednesday, BofA Securities adjusted its outlook on Core & Main Inc. (NYSE: CNM), a prominent distributor of water infrastructure products, by increasing its price target to $40.00, up from the previous $34.00. Despite the price target hike, the firm maintained its Underperform rating on the company's stock.
The revision follows Core & Main's third-quarter fiscal 2024 report, which showed revenues and adjusted EBITDA surpassing consensus estimates. The company's performance in the quarter was largely driven by recent acquisitions and the recognition of deferred revenues from the second quarter, which helped to balance out the impact of lower pricing.
In response to the strong quarter, Core & Main's management has revised its full-year 2024 revenue guidance upwards by $50 million, now expecting it to be between $7.35 billion and $7.45 billion. This increase is primarily due to the five acquisitions completed in the third quarter. Additionally, the adjusted EBITDA forecast has been lifted by $10 million at the midpoint, now aiming for $915 million to $935 million.
Looking ahead, the management has also laid out a strategic framework for 2025, targeting a year-over-year revenue growth of approximately 6-8% and an adjusted EBITDA margin expansion of 30-50 basis points. Despite these positive developments, BofA Securities remains cautious, reflected in the Underperform rating. The firm justifies the raised price target, now based on 10 times the estimated 2026 enterprise value to EBITDA (EV/EBITDA), up from the earlier 10 times the 2025 estimate.
This target multiple is set lower than the 19 times peer average for the calendar year 2025, due to Core & Main's higher financial leverage and a slower near-term EBITDA growth trajectory.
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