RBC (TSX:RY) Capital has adjusted its outlook on shares of Core & Main Inc. (NYSE: CNM), lowering the price target to $53.00 from the previous $60.00 while maintaining an Outperform rating.
The revision follows Core & Main's second-quarter results, which came in below expectations, prompting a reduction in the company's full-year guidance.
The firm's FY24E EBITDA estimate has been decreased by 3% to $907 million in light of these results. Despite the underwhelming performance, the analyst noted that expectations regarding pricing and gross margin percentage have not changed, which counters the bearish view of continued increased weakness.
The analyst also pointed out potential positive developments for Core & Main, anticipating a sequential improvement in gross margin percentage in the second half of the year, which could serve as a positive catalyst for the stock. The forecast is based on the belief that the current market sell-off presents an opportunity to buy into a compelling long-term growth story that is unique to Core & Main.
Core & Main reported a 6% increase in net sales for the second quarter, reaching $1.96 billion, primarily driven by acquisitions. However, due to lower-than-expected end-market volumes, the company revised its full-year net sales and adjusted EBITDA projections downwards. Despite these adjustments, Core & Main remains growth-focused, planning to continue investing in organic growth, mergers, and acquisitions.
Baird, in its recent analysis, lowered the price target for Core & Main to $53 from the previous $62 but retained an Outperform rating on the stock. This followed the company's weaker-than-expected results for the second quarter and a reduction in full-year guidance. Despite the immediate challenges, Baird suggests that Core & Main presents an opportunity for longer-term investors.
InvestingPro Insights
In light of RBC Capital's revised outlook on Core & Main Inc. (NYSE: CNM), insights from InvestingPro reveal additional context that could be valuable for investors considering the stock. Core & Main has been actively buying back shares, signaling management's confidence in the company's value (InvestingPro Tip #0). Additionally, the stock's recent performance indicates it is in oversold territory according to the Relative Strength Index (RSI), which could suggest a potential rebound (InvestingPro Tip #1).
From a financial standpoint, Core & Main holds a market capitalization of approximately $7.94 billion, with a P/E ratio of 18.53. The company has shown a moderate revenue growth of 3.65% over the last twelve months as of Q1 2023. Moreover, the company's liquid assets surpass short-term obligations, indicating a solid liquidity position (InvestingPro Tip #5). While the stock has experienced a significant price drop over the last three months, analysts predict Core & Main will be profitable this year, and it has indeed been profitable over the last twelve months (InvestingPro Tips #6 and #9).
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips on Core & Main. To explore these insights, visit: https://www.investing.com/pro/CNM.
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