Ferguson Enterprises shares could gain 25% as the company continues to expand market share. By Al Root
Fears of artificial-intelligence disruption are sending some people back to trades like plumbing as they seek job security in a tech-dominated world. Investors looking to avoid fixing leaks can stay at their desks and buy shares of plumbing distributor Ferguson Enterprises.
The stock can gain 25% over the next 12 to 18 months as the company executes its growth strategy, rolls up more regional players, and continues to expand market share.
With some 35,000 employees working in more than 1,700 locations, connecting 37,000 suppliers with one million customers, Ferguson is the largest plumbing and HVAC distributor in the U.S., selling mainly to contractors and maintenance pros. It also sells to do-it-yourselfers, chiefly through its fergusonhome.com website.
When Barron's first picked Ferguson stock in April 2023, the company was generating about $29 billion in annual sales and shares were trading for less than 15 times earnings expected over the next 12 months. That was too cheap for a business with the potential to grow earnings at double-digit annual rates. Today, Ferguson trades at 23 times earnings. It's still a bargain.
One reason for the depressed multiple was that the company wasn't domiciled in the U.S. Investors and U.S. analysts simply weren't following it, despite Ferguson generating all of its sales in North America. The Newport News, Va.-based company corrected that in August 2024, resulting in more coverage and making it eligible for inclusion in the S&P 500, something that made sense to us given its size and scale.
"We really like the business," says Lori Keith, a mid-cap portfolio manager at Parnassus Investments. "This is a very disciplined management team, extremely around capital allocation." Parnassus owns roughly 2.6 million shares of Ferguson, or about 1.3% of shares outstanding as of December 2025, according to regulatory filings.
Distribution businesses tend to be resilient. Fastenal, for example, has grown earnings through a brutal three-year industrial recession. There are mergers and acquisitions opportunities, too. Ferguson generally has the largest or second-largest market position in locations where it operates, while controlling only about 10% of the overall market in those areas.
Being the largest player in such a fragmented market brings benefits, adds Keith. Ferguson can buy smaller competitors and integrate them more efficiently. The company has made more than two dozen such bolt-on acquisitions in the past four years.
That helped grow sales 5% in 2025, despite a moribund housing market. Residential markets account for roughly half of Ferguson's business, with commercial customers, including AI data centers, accounting for the other half.
Yes, AI helps Ferguson stock, too. Its Commercial/Mechanical customer group, which includes large projects, grew 18% in 2025 after growing 5% in 2024.
Ferguson's residential business was flat last year. Any break in interest rates, resulting in people moving and building houses again, would be a boon for the company. Yet Ferguson isn't sitting still. Management wants to expand the business to $40 billion and operating profit to $4 billion over the next three to five years, with growth coming from a mix of market growth, outperformance, and M&A.
The balance sheet can support the growth. Net debt to 2025 earnings before interest, taxes, depreciation, and amortization, or Ebitda -- a common measure of financial leverage -- was about 1.1 times. Any multiple below two times rarely concerns investors. What's more, the low ratio provides Ferguson with some ability to ramp up its pace of acquisitions.
Wall Street hasn't baked that into estimates yet. Analysts don't project $40 billion in annual sales anytime soon. That doesn't mean they're pessimistic. The average analyst estimate projects 5% to 6% sales growth for the coming three years and 10% earnings-per-share growth. Upside to those growth estimates is possible, says Wells Fargo analyst Sam Reid, who has an Overweight rating on the stock.
If management is able to accelerate growth, hitting its $40 billion goal, Ferguson should generate earnings per share north of $14, up from an expected $11.12 in 2026, which would justify a $325 price target at current valuation multiples, up about 25% from recent levels. A modest 1.3% dividend yield at current prices provides some income in the meantime.
For earnings to reach those levels, residential markets will likely need to cooperate. High interest rates remain a risk for those prospects. The company has executed well through recent choppy markets, "controlling costs, expanding margins, and investing in moat-strengthening capabilities," says Baird analyst Dave Manthey. He rates the shares Outperform and has a $285 price target.
Another risk is commodity prices. Inputs like copper and plastic prices can be unpredictable, driving some volatility in Ferguson's quarterly reports. Generally, though, all distributors, including Ferguson, can benefit from lower-priced products already in stock.
Housing markets and commodity prices are concerns, but amount to transient factors to be managed. Eventually, the housing market will turn, and commodity prices will do whatever they do. Ferguson stock has shown the ability to perform despite not everything going exactly to plan.
That might be the best thing the stock has going for it.
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April 24, 2026 21:31 ET (01:31 GMT)
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