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On Friday, Morgan Stanley (NYSE:MS) revised its outlook on Ferguson Plc. (NYSE: FERG), reducing the price target from $204.00 to $195.00, while still keeping an Overweight rating on the stock. The adjustment follows the analysis of Ferguson’s second quarter results for fiscal year 2025 and a downward revision of the company’s full-year guidance. According to InvestingPro data, the stock currently trades at $155.08, near its 52-week low of $152.52, suggesting potential value opportunity based on InvestingPro’s Fair Value analysis.
The research firm’s analyst, Annelies Vermeulen, updated their financial model to reflect recent developments, including the company’s performance and projections. Despite a downgrade in the fiscal year 2025 guidance, Morgan Stanley anticipates an approximate 1% organic growth for Ferguson in line with the company’s guidance. However, the firm has reduced its margin forecast by 80 basis points to 8.6%, which aligns with the midpoint of Ferguson’s revised margin guidance range of 8.3-8.8%. The stock has experienced significant pressure recently, with InvestingPro data showing a -7.79% return over the past week, though the company maintains strong fundamentals with a healthy current ratio of 1.82.
The revised margin forecast has led to an 8% decrease in Morgan Stanley’s operating profit expectations for Ferguson in fiscal year 2025. Adjustments were also made to account for interest costs, taxes, and share buybacks. Consequently, the firm’s earnings per share (EPS) estimates for Ferguson from fiscal years 2025 to 2027 have been lowered by 6-9%.
Despite the reduction in the price target and earnings estimates, Morgan Stanley maintains an Overweight rating on Ferguson stock. The rating indicates the firm’s belief that Ferguson shares should outperform the average total return of the stocks covered over the next 12 to 18 months. The Overweight rating remains even with the newly adjusted price target of $195, suggesting continued confidence in the stock’s potential.
In other recent news, Ferguson PLC (NYSE:FERG) reported its second-quarter earnings for fiscal year 2025, which fell short of expectations. The company announced an earnings per share (EPS) of $1.52, missing the anticipated $1.99, and reported revenue of $6.9 billion, below the forecasted $7.09 billion. This earnings miss prompted analysts to adjust their outlooks. RBC Capital Markets lowered its price target for Ferguson from $211 to $189, maintaining an Outperform rating, while Truist Securities reduced its target from $230 to $200, keeping a Buy rating. UBS also revised its price target downward to $173 from $193, maintaining a Neutral stance.
Analysts cited ongoing commodity deflation and a challenging macroeconomic environment as contributing factors to Ferguson’s financial performance. Despite these challenges, the company experienced a 3% increase in net sales year-over-year, with organic growth in certain segments like HVAC and Waterworks. Ferguson’s non-residential business has shown resilience, with some verticals experiencing growth despite broader economic pressures.
Looking ahead, Ferguson anticipates improved pricing dynamics in the second half of the fiscal year and remains committed to its expansion strategy in the HVAC and Waterworks sectors. Analysts from RBC and Truist Securities expressed optimism about the potential impact of steel tariffs in mitigating ongoing deflationary pressures. Ferguson continues to focus on disciplined cost management and strategic growth initiatives to navigate the current market environment.
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