FERG Ferguson Enterprises
Dominant scale distributor compounding steadily — but 12% implied growth is too rich.
The business
Ferguson is North America's largest value-added distributor of plumbing, HVAC, waterworks, and industrial supplies. It buys products from manufacturers at scale, holds local inventory, and sells to professional contractors who need same-day availability and technical support.
Quality gate · 85/100
Moat & management
| Moat | wide moat |
| Source | scale |
| Trajectory | stable |
| Management | excellent |
Distribution is a local density game — Ferguson's unmatched branch network and inventory breadth create a cost advantage and high switching costs for contractors who need reliable same-day fulfillment. Scale enables better supplier terms, denser logistics, and acquisitions in a still-fragmented industry. The 23% ROIC confirms the advantage is real and durable, though margins are inherently thin in distribution.
Disciplined capital allocators: steady share buybacks (-2.8% CAGR), sensible leverage at 1.6x net debt/EBITDA, 82% FCF conversion, and a focused North American strategy after spinning off the UK business. Acquisitions in a fragmented market appear opportunistic rather than empire-building.
Owner-earnings inputs
| Owner earnings (TTM) | 2.07B |
| Owner-earnings yield | 4.0% |
| Free-cash-flow yield | 4.0% |
| Growth used (normalized) | 5.5% |
| Market-implied growth (reverse DCF) | 11.5% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.7% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 2.18B | 5.5% | 1.99B |
| 2 | 2.30B | 5.3% | 1.91B |
| 3 | 2.42B | 5.1% | 1.83B |
| 4 | 2.54B | 5.0% | 1.75B |
| 5 | 2.66B | 4.8% | 1.67B |
| 6 | 2.78B | 4.6% | 1.59B |
| 7 | 2.90B | 4.4% | 1.51B |
| 8 | 3.03B | 4.2% | 1.44B |
| 9 | 3.15B | 4.1% | 1.36B |
| 10 | 3.27B | 3.9% | 1.29B |
| 11 | 3.39B | 3.7% | 1.22B |
| 12 | 3.51B | 3.5% | 1.15B |
| 13 | 3.63B | 3.4% | 1.08B |
| 14 | 3.75B | 3.2% | 1.02B |
| 15 | 3.86B | 3.0% | 956.82M |
Key risks
- Construction cyclicality — downturns pressure volumes and working capital simultaneously
- Disintermediation risk from manufacturers selling direct or online platforms gaining share
- Interest rate sensitivity — housing and commercial construction activity is rate-dependent
Catalysts
- Continued consolidation of fragmented plumbing/HVAC distribution market
- Margin expansion from scale efficiencies and digital/operational improvements
- Infrastructure spending tailwind for waterworks segment
Recent news
score · 8 articles
- Ferguson Enterprises Tops Quarterly Views, Sees Sales Growth at Top End of Outlook
- Stocks Mostly Up Pre-Bell as Traders Assess Middle East Developments, Await Key Inflation Data
- Ferguson Beats Earnings Estimates. Why the HVAC Supplier Is Optimistic as Business Headwinds Persist.
- Barrick Mining to Post Q2 Earnings: What's in the Cards for the Stock?
- Ferguson Enterprises (FERG) Is Up 10.1% After Joining The S&P 500 Index - What's Changed
- Canadian Natural to Report Q2 Earnings: What's in the Offing?
- Ferguson Stock Jumps 8% on Surprise S&P 500 Entry
- Ferguson Added to S&P 500 and the Plumbing Stock Pops. Where It Can Go Next.
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~12%/yr owner-earnings growth over 15y (reverse DCF); model credits 6%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.