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On Thursday, Citi analyst Anthony Pettinari maintained a Neutral rating on Core & Main Inc. (NYSE:CNM) with a steady price target of $56.00. Pettinari highlighted the company’s active mergers and acquisitions strategy, noting that Core & Main has completed or announced 11 acquisitions in 2024, which could potentially add around $460 million in annual sales. These acquisitions, spread across an estimated 42 locations, are part of the company’s expansion in the highly fragmented waterworks industry, where Core & Main and its competitor Ferguson Plc hold an estimated 34% market share.
Pettinari pointed out Core & Main’s historical success in acquiring over $1 billion in revenues through mergers and acquisitions since 2017. The company typically purchases businesses at a 5-8x multiple, with synergies reducing this multiple by 2-3x. These synergies often result in approximately 100-150 basis points of operating cost reductions and can be realized on both large and small deals. Core & Main experiences the benefits of purchasing synergies from the first day of an acquisition.
The analyst also discussed Core & Main’s private label strategy, which presents a long-term opportunity to source more than 10% of its products internally, up from the current 2%. This shift could improve margins by 30-50 basis points over five years. Fire Protection products, in particular, are seen as having significant private label potential, as they previously involved multiple layers of distribution and markups. However, products like Meters & Commodity Pipe are not viewed as having as much potential for private labeling. The greatest opportunities for private label expansion are in products that are not specified by engineers, where private label can yield a gross margin that is 1.5-2.0 times higher.
In other recent news, Core & Main Inc. reported robust third-quarter fiscal 2024 earnings, with revenues and adjusted EBITDA surpassing consensus estimates. Following these results, the company has increased its full-year 2024 revenue guidance by $50 million, now anticipating between $7.35 billion and $7.45 billion. The adjusted EBITDA forecast has also been raised to a range of $915 million to $935 million. In a strategic financial move, Core & Main has secured approximately $744 million in new Tranche E Term Loans to repay existing debts and manage transaction-related costs. Analyst firms have responded to these developments with mixed ratings and price targets. BofA Securities raised its price target for Core & Main to $40, maintaining an Underperform rating, while RBC Capital increased its target to $62 with an Outperform rating. Baird also expressed confidence by raising its price target to $66, maintaining an Outperform rating. Meanwhile, Goldman Sachs held a Neutral rating with a consistent price target of $57, acknowledging the company’s strong third-quarter performance. These updates reflect Core & Main’s ongoing efforts to optimize its financial structure and growth strategy.
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