Ferguson ranked up Monday after being added to the prestigious S&P 500. The plumbing distribution stock basked in the honor.
Shortly after the market's open, shares were up 8.1% to $253.18. The S&P 500 and Dow Jones Industrial Average gained 0.7% and 1.1%, respectively.
The S&P announced Friday that Ferguson was joining its flagship S&P 500 index, which has some $20 trillion in capital is either directly indexed to or benchmarked against it.
Ferguson will replace Electronic Arts, which is being acquired. The change happens before the market opens Wednesday.
S&P 500 inclusion has been a possiblity for a while -- and Barron's has mentioned it a couple of times -- in April 2023 and just this past April.
Ferguson generates almost all its business in North America and is the largest plumbing and HVAC distributor in the U. S. -- worth about $45 billion, generating more than $30 billion in annual sales.
Still, Ferguson was based in Britain -- U.K.-based Wolseley acquired it more than 40 years ago -- and traded on the London Stock Exchange. Wolseley eventually renamed itself Ferguson and shifted its primary stock listing to the U.S. in 2024. In 2023, shares stood at about $125.
The company has managed to steady grow earnings, despite a weak housing market. A commercial construction boom concentrated in AI data centers has boosted the stock. A recovery in home sales would be another strong catalyst.
Ferguson reported earnings per share of almost $10 in 2023. Earnings are expected to be about $11.30 this year and approach $13 in 2027.
In the long run, earnings growth will determine how the stock trades and is valued. Still, S&P inclusion could be a catalyst for re-rating.
Ferguson stock is expected to grow earnings by 10% a year on average for the coming three years, according to FactSet. Distributors Fastenal and W.W. Grainger are expected to grow earnings 9%. The latter two trade fro about 36 and 25 times earnigns expected over the coming 12 months. Ferguson stock trades for about 21 times.
The average analyst price target for Ferguson is about $286, up about 20% from recent levels. That price would value shares at about 24 times earnings.
Each business, of course, is unique, but the valuation difference shows what could be possible.
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