On Wednesday, Truist Securities maintained its Buy rating on shares of Ferguson Plc (NYSE: FERG), with a steady price target of $230.00. Ferguson's shares experienced an 8% decline intraday, contrasting with a slight increase in the S&P 500, attributed to the company's first-quarter earnings before interest and taxes (EBIT) for fiscal year 2025, which fell short of Wall Street's expectations.
The shortfall was primarily linked to higher selling, general, and administrative (SG&A) costs not being offset by revenue growth, a situation often referred to as SG&A deleverage.
Despite the EBIT margin miss, the analyst at Truist Securities observed that demand in most markets has been relatively flat to slightly declining. However, unit growth for Ferguson has been positively solid, countering some of the increased expenditure, although the company is still facing approximately 2% deflation.
InvestingPro analysis shows the company maintains strong fundamentals with a healthy current ratio of 1.68 and operates with moderate debt levels. For deeper insights into Ferguson's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Truist Securities anticipates that analysts' projections will likely adjust to the lower end of Ferguson's management guidance. This adjustment could lead to fiscal year-end earnings surpassing expectations if there are any improvements in metrics.
The analyst also notes that while Ferguson may rally later than residential-focused companies due to its market division between residential and non-residential sectors, it traditionally demonstrates exceptional organic growth.
In light of the recent financial results, Truist Securities has revised its EBIT estimate for Ferguson for fiscal year 2025 downward to $2,742 million from the previous $2,806 million. Moreover, the firm has introduced an EBIT estimate of $3,101 million for fiscal year 2026. The company's current EBITDA stands at $2.91 billion, with analyst targets ranging from $167 to $258 per share, suggesting an average upside potential of 18% from current levels.
Despite the revision in EBIT estimates, the price target remains unchanged at $230.00, based on applying a 16.7 times multiple to the firm's fiscal year 2025 EBITDA estimate. This valuation reflects the analyst's long-term confidence in Ferguson's growth potential, suggesting it could be an opportune moment for long-term investors to consider the stock.
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