On Thursday, Ferguson Plc (FERG:LN) (OTC: FERGY) shares received a positive outlook from Morgan Stanley (NYSE:MS), as the investment firm upgraded the stock’s rating from Equalweight to Overweight and increased its price target to GBP163.50, up from the previous GBP155.00. The upgrade reflects Morgan Stanley’s confidence in Ferguson’s business model and its potential for continued growth.
Stifel analysts highlighted Ferguson’s position as a quality business with the capacity to increase market share through its scale advantage, advanced technology, and superior customer offerings. They expect the company to see further margin improvements driven by an increase in own-brand sales and productivity enhancements.
Ferguson’s current revenue structure, with two-thirds being driven by repair, maintenance, and improvement (RMI), is believed to make the company less vulnerable to cyclical economic downturns. Additionally, Morgan Stanley anticipates that Ferguson will gain disproportionately from mega-projects, particularly in the later stages of these projects’ lifecycles.
The analysts also pointed to Ferguson’s strong financial standing, noting a projected leverage ratio of 0.8x by the end of the calendar year 2025. This robust balance sheet is seen as providing Ferguson with various opportunities for mergers and acquisitions (M&A) as well as the potential for increased returns to shareholders.
In summary, Morgan Stanley’s upgrade is based on Ferguson’s solid market leadership, the strategic focus on RMI revenue, and the financial flexibility that could contribute to the company’s growth and profitability in the coming years.
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