Ferguson Enterprises Inc. (FERG): what the price assumes

In the published model solve dated 2026-Q2, anchored at $228.49, Ferguson Enterprises Inc. (FERG) is priced for +9.6% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-08-31 · Source: https://boothcheck.com/report/FERG

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.2% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: n/a

Valuation X-Ray

The price is justified by relative-multiple; asset-based/earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.5%); the inversion above states its own rate.

Per-Model Detail (n=18)

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• The company buys from "approximately 37,000 suppliers, with no supplier accounting for more than 5% of total inventory purchases" and sells to an even more fragmented base of trade professionals, which is the whole reason a middleman survives in plumbing and heating.
• Roughly half of US revenue comes from residential end markets that shrank about 1% in the March quarter, and the business still grew, because non-residential revenue rose about 8% on large capital projects.
• The next thing to watch is the FloWorks purchase, an industrial flow-control distributor Ferguson agreed on 13 July 2026 to buy for an enterprise value near 1.6 billion dollars, with closing expected in the third quarter.

Bull Case

Here is the number that does not fit the story people tell about distributors. Ferguson keeps about 31 cents of gross profit out of every sales dollar, and only around nine of those cents make it down to operating profit. The 22 cents in between are not waste. They are the branches, the trucks, the counter staff who know which valve fits, and the eleven regional distribution centres that make same-day delivery possible. That spread is the business. A competitor who wants the nine cents has to build the 22 first.

The March quarter showed what that buys. Residential end markets, about half of US revenue, contracted roughly 1%, and reported operating profit still rose 20.7% on sales up 3.6%. Non-residential revenue grew about 8%, driven by large capital projects the company is positioned to serve across several customer groups at once. A distributor that can only follow its end market does not do that.

The moat is boring and hard to copy, which is the good kind. The annual report describes a supplier base of roughly 37,000 with none of them large enough to set terms, and on the other side a customer base more fragmented still. Between the two, the network itself does the work: "Our network serves our customers in all 50 states with approximately 32,000 associates, providing same-day and next-day product availability, which we believe to be a competitive advantage and an important requirement for customers." A contractor with a crew standing idle does not shop on price. He shops on whether the part is there this afternoon.

Pricing power shows up where it always does for a distributor, in the gross margin line rather than in headline growth. The 10-K attributes the improvement to deliberate action rather than to the cycle: "Gross profit as a percent of sales was 30.7% in fiscal 2025 compared with 30.5% in the prior year. The increase reflected specific management actions to better capture the value provided to customers". Twenty basis points sounds like nothing. On a revenue base above thirty billion dollars, it is not nothing, and it compounds against a cost base that is largely fixed once the branch is open.

Then there is the consolidation runway, which the company states as strategy: "We believe there is a significant opportunity for strong growth and continued consolidation within our markets." In the March quarter alone, six completed or signed acquisitions added roughly 350 million dollars of annualised revenue, and the FloWorks agreement in July adds a business with about a billion dollars of 2025 revenue in industrial flow control. Buying small local distributors at private-market multiples and running them through an existing national network is the oldest arbitrage in the trade, and it works as long as the network stays denser than anyone else's. Share count has meanwhile been falling at about 2% a year since late 2023, so the arithmetic per share works from both directions.

Bear Case

A distributor's balance sheet is not really about borrowing. It is about the inventory sitting in eleven distribution centres and the receivables owed by contractors, and both of those turn hostile in exactly the same week. Ferguson's funded position is modest by any measure: net borrowings run about 3.5 billion dollars on the funded basis, or about 5.4 billion once lease obligations are counted alongside them. The fragility is not in the interest bill. It is in what happens to working capital when volumes turn and prices fall at the same time, which is precisely the combination the 10-K warns about, naming "price changes based upon fluctuations in the commodities market, which can arise from changes in domestic and international supply and demand, general inflationary and deflationary pressures". Copper and PVC do not care about a distribution network.

Set against that, look at what the price requires. Today's quote is paying for company-wide operating profit to compound at a high-teens annual pace across a five-year stretch. The historical base rate is not encouraging: only about 41% of comparable fast growers sustained that pace for that long. And the business supplying the demand for it is currently half residential, in a market the company itself calls challenged, with new construction weak and repair and improvement work soft. The growth has to come from non-residential capital projects and from acquisitions. Both are real. Neither is the reliable, self-renewing kind of demand a five-year compounding assumption prefers.

The acquisition engine deserves its own scrutiny because it is doing so much of the work. Six deals in a quarter plus a 1.6 billion dollar agreement in July is a fast cadence, and the 10-K does not oversell the odds: "Following integration, an acquired business may not produce the expected margins or cash flows." Serial acquirers get judged eventually on whether returns on the deployed capital exceed the cost of it, and that verdict arrives with a lag measured in years, long after the revenue synergy slide has been forgotten. In the meantime, the reported growth rate blends organic performance with purchased revenue, and in the March quarter organic was the smaller half of a 3.6% total.

Competition is also getting more concentrated on the other side of the trade, which the filing acknowledges without much comfort: "this competitor consolidation could cause the industries in which we operate to become more competitive as greater economies of scale are achieved". Scale advantages are only advantages while they are asymmetric. If the next tier of distributors merges its way to comparable density, the same-day promise stops being a differentiator and starts being table stakes, and the 22 cents of operating cost between gross and operating profit becomes a burden rather than a barrier.

Finally, the models split along a fault line worth naming. Against the asset-value methods the price carries a premium near 100 percent, and against the earnings-power methods closer to 130 percent. Only the forward-growth methods and part of the peer-multiple set reach it. That is a defensible position for a quality compounder and a fragile one for a cyclical, and which of those Ferguson is depends entirely on whether the residential half comes back.

Valuation

Two things have to be separated before any multiple means anything here. Ferguson sells products it does not make, keeping roughly thirty-one cents of gross profit on the sales dollar and converting a single-digit slice of revenue all the way down. So revenue-based comparisons flatter it and asset-based comparisons starve it, and the sensible read sits between them.

What the price is paying for is straightforward once stated. It requires company-wide operating profit to compound at a high-teens annual rate through a five-year stage. That is not an absurd requirement for a consolidator in a fragmented market, and the record says it is not a common one either: of comparable fast growers, only about 41% sustained that pace across five years. The company's own guidance for the twelve months to December 2026 is more modest, calling for low-to-mid single digit sales growth and an adjusted operating margin between 9.4% and 9.8%. Getting from that to high-teens profit growth requires acquisitions to keep clearing their cost of capital, year after year.

The methods divide predictably. Against the asset-value methods the price carries a premium near 100 percent, and against the earnings-power methods closer to 130 percent, which is what happens when you value a business whose main assets are relationships, routes and a warehouse network on the book value of the warehouses. The forward cash-flow methods land essentially on the price. The peer-multiple family straddles it, and the split inside that family is instructive: reading the business on a sector price-to-sales reference makes it look cheap, while reading it on earnings makes it look about a fifth expensive. For a company that keeps single-digit cents of operating profit per sales dollar, the sales-based reading is the one to distrust.

Against its actual cohort the position is unremarkable in a useful way. GWW runs a 14.2% operating margin and FAST 20.2%, both well above Ferguson, but both sell smaller, higher-margin consumables rather than pipe and boilers. The closer comparisons are CNM at 9.5%, WSO at 9.9% and POOL at 10.9%, and Ferguson sits right among them; WCC at 5.3% and SITE at 5.1% sit below. Nothing in the cohort suggests this business earns a structurally different return from its neighbours, which puts the weight of the case back on scale and consolidation rather than on economics the peers cannot match.

Solvency bounds the downside rather than adding to the case. Cash generated by operations was 772 million dollars in the March quarter alone, the company was buying back stock through it, and the board authorised a further 2.0 billion dollar repurchase programme with no expiration. Guidance puts the 2026 interest bill at 200 million dollars, small against a profit line of this size. The borrowing is not what would break this business. Working capital in a genuine downturn might strain it, and inventory that stops turning is a distributor's real leverage, whatever the funded number says.

Catalysts

The single largest development is dated 13 July 2026. Ferguson agreed to acquire FWI Holdings, trading as FloWorks, an industrial distributor of valves and flow control equipment, for an enterprise value of approximately 1.6 billion dollars in a cash transaction. The seller is a private equity owner, the target generated roughly a billion dollars of 2025 revenue across more than 60 locations, and the stated purchase multiple is around ten times the target's last-twelve-month adjusted earnings before interest, taxes, depreciation and amortisation, including about 45 million dollars of expected synergies. Management frames the logic as exposure to data centres, semiconductors, power generation and pharmaceuticals, and expects closing in the third quarter of 2026 subject to regulatory approval. Whether the integration delivers is the question the next several prints will answer.

The March quarter, reported on 5 May 2026, was the first of a calendar reporting year after the company moved its financial year end to December. Sales came in at 7,472 million dollars, up 3.6%, with organic growth of 2.8% and acquisitions adding 0.8% against mid-single-digit price inflation. Reported diluted earnings per share were 2.13 dollars, up 23.1%. US net sales rose 3.5% and Canada 5.5%, the latter almost entirely from acquisitions. Guidance for the twelve months to December 2026 was left unchanged at low-to-mid single digit sales growth, an adjusted operating margin of 9.4% to 9.8%, capital expenditure of 350 to 400 million dollars and an adjusted effective tax rate of 26%.

Capital returns and one housekeeping item round out the quarter. The board declared a quarterly dividend of 0.89 dollars per share, paid on 8 July 2026 to holders of record on 15 May, and authorised a new repurchase programme of up to 2.0 billion dollars with no expiration date, replacing the prior authorisation; 236 million dollars of stock was bought back during the quarter itself. Separately, Ferguson disclosed a review of its secondary listing on the London Stock Exchange that may end in cancellation, with the review expected to conclude during the second quarter of 2026. For a company that completed six acquisitions or signed agreements in a single quarter, adding roughly 350 million dollars of annualised revenue, the deal cadence rather than the listing is the thing to track.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• CNM (Core & Main, Inc.)
• FY2025 10-K: -Risks Related to Our Indebtedness." Our industry and the markets in which we operate are fragmented and highly competitive, and increased competitive pressures, including the pressure to consolidate, could adversely affect our business. The markets in which we operate are fragmented and highly competitive.…
• FY2025 10-K: …mately 19% of our $39 billion addressable market in fiscal 2024. The principal competitive factors in our industry include the breadth, availability, access and pricing of products and services, technical knowledge and project planning capabilities, local expertise, as well as delivery capability and reliability. We…
• WSO (WATSCO INC)
• FY2025 10-K: …most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions. 12 Table of Contents Competition We operate in highly competitive environments. We compete with a number of distributors and also with several…
• FY2025 10-K: …parts, and supplies to enable a contractor to install or repair a central air conditioner, furnace, or refrigeration system; (ii) maintaining a strong density of warehouse locations for increased customer convenience; (iii) maintaining well-stocked inventories to ensure that customer orders are filled in a timely…
• GWW (W.W. GRAINGER, INC.)
• FY2025 10-K: …In the Endless Assortment segment, Grainger offers an expansive product assortment that contains millions of products, including those outside of traditional industrial MRO categories. Zoro offers approximately 13 million products and MonotaRO provides access to approximately 29 million products, primarily through…
• FY2025 10-K: …and market-specific factors. The Company's revenue is primarily comprised of MRO product sales and related activities. The Company's presentation of revenue by reportable segment and customer industry most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are…
• WCC (WESCO International, Inc.)
• FY2025 10-K: …condition could be adversely affected. We may consider outsourcing additional functions in the future, further heightening these risks. An increase in competition could decrease sales, profit margins, and earnings. We operate in a highly competitive industry and compete directly with global, national, regional and…
• FY2025 10-K: …We may be unable to pass through incremental costs to customers in a timely manner or at all without adversely affecting our price competitiveness or margins. If we are unable to adjust pricing, sourcing or inventory strategies effectively, or if customers reduce or defer purchases (including due to demand…
• POOL (POOL CORPORATION)
• FY2025 10-K: …focused on the swimming pool industry in the United States. We are also one of the leading distributors of irrigation and landscape maintenance products in the United States. We face intense competition from many regional and local distributors in our markets and from a limited number of other national wholesale…
• FY2025 10-K: …a higher concentration of competitors than others, particularly California, Florida, Texas and Arizona. These states encompass our four largest markets and represented approximately 53% of our net sales in 2025. The entry of significant new competitors into these markets could negatively impact our sales. We may also…
• RS (RELIANCE, INC.)
• FY2025 10-K: …profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings. Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. ​ Overview ​ Net sales were $14.29 billion in 2025,…
• FY2025 10-K: …of a reduced number of shipping days, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. The number of shipping days in each quarter has an impact on our quarterly sales and profitability. We cannot predict whether period-to-period fluctuations…
• SITE (SiteOne Landscape Supply, Inc.)
• FY2025 10-K: …in the notes to the consolidated financial statements for additional information regarding significant segment expenses. 41 Table of Contents Gross profit and gross margin Gross profit for the 2025 Fiscal Year increased 5% to $1,635.2 million as compared to $1,560.1 million for the 2024 Fiscal Year. Gross profit…
• FY2025 10-K: …fleet utilization and cost improvements. • Sales force initiatives, including optimizing our commercial sales strategies, leads, and opportunities, while improving the skills and performance of the team. • Marketing initiatives, including customer analytics and lifecycle marketing, product and private brand…
• FAST (FASTENAL CO)
• FY2025 10-K: …competitive factors affecting the markets for our products, in no particular order, are customer service, price, convenience, product availability, and cost saving solutions. Market strategies in industrial distribution are varied. With respect to products, many of the larger distributors have trended toward a…
• FY2025 10-K: …customers engaged in a wide range of activities, none of which individually constitute 10% of sales. This includes non-residential construction, reseller, transportation, warehouse and storage, data centers, and g overnment/education customers. Our construction end market experienced growth starting in the second…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.