FERG

Publicly traded companies mentioned herein: Ferguson PLC (FERG)

Highlights

The presenter is long shares of Ferguson PLC (FERG), the dominant distribution company in US plumbing, kitchens, bathrooms, and waterworks infrastructure. It was formerly Wolseley in the UK but has since sold off its non-US distribution assets, redomiciled in the US, and changed its primary listing to the NYSE. 20% of shares were sold by UK and European institutions following the move and there is still net index selling. At $115 (sub-12x FY2022 EPS of $9.76), the stock is dislocated due to the lack of US coverage and the relist coinciding with a softening housing market. However, FERG is an S&P 500-sized company and over the next two years, he expects US index funds to purchase 30% – 35% of outstanding shares. Additionally, he is more optimistic on the housing market than consensus (albeit still modeling the new housing construction and RMI markets down) and FERG outgrows the market, leading to his base case assumption of minor growth over the coming 12 – 18 months. Modeling FY2024 EPS of $10.50 (vs. the Street’s $9.30) and index purchasing creates a reasonable path to $200 per share.