Investing.com -- Shares of Ferguson (NYSE:FERG) rose on Wednesday following a double upgrade from analysts at BofA Securities.
The brokerage upgraded the stock to "buy" from "underperform" and raised its price objective to 18,000 GBp ($225) from the previous target of 14,000 GBp ($185).
The move reflects what BofA analysts see as an attractive entry point into a company poised to benefit from structural growth drivers and favorable inflation dynamics in the United States.
The analysts flagged Ferguson as a "long-term growth compounder," pointing to several factors that make the stock appealing.
First, they noted the company’s resilience in navigating a challenging economic environment marked by high interest rates and slowing construction activity.
Despite these headwinds, Ferguson has been consistently outperforming its underlying markets over recent quarters.
BofA analysts also flagged the potential for rising US inflation to serve as a tailwind for Ferguson starting in the second half of fiscal 2025.
While higher inflation could result in elevated interest rates and further delays in a recovery for the housing and commercial construction sectors, BofA suggested that pricing power—rather than sales volumes—is likely to play a more significant role in boosting Ferguson’s earnings.
This dynamic would support the company’s margins over time, particularly as commodity prices stabilize.
BofA pointed out that Ferguson is trading at a roughly 20% discount relative to the average of its US-based peers.
The analysts argued that this discount is unjustified, given the company’s strong fundamentals and operational execution.
As a result, BofA now values Ferguson in line with its peer group, raising the target price-to-earnings ratio to 23 times from 19 times previously, and the target EV/EBITDA multiple to 15 times from 14 times.
Consensus expectations for Ferguson’s fiscal 2025 earnings have already been adjusted downward following slightly softer-than-expected first-quarter margin results.
However, BofA described these expectations as "realistic" and suggested they may even be conservative for fiscal 2026, particularly as inflationary pressures could provide an upside to margins.
The brokerage’s revised trading profit estimates align with current consensus for fiscal 2025 and exceed it by about 2% for fiscal 2026.
Going forward, Ferguson could also gain a significant boost from potential inclusion in the S&P 500 index, according to BofA. Such a development would enhance the company’s visibility among US investors and likely drive additional demand for its shares.