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Baird has revised its outlook for Core & Main Inc. (NYSE: CNM), lowering the price target to $53.00 from the previous $62.00, while retaining an Outperform rating on the stock.
The adjustment follows Core & Main's report of weaker-than-expected results for the second quarter of fiscal year 2024, accompanied by a reduction in the full-year guidance.
The company's near-term prospects appear to be under pressure due to subdued market conditions and ongoing worries about polyvinyl chloride (PVC) pricing.
These concerns have been exacerbated by a recent lawsuit, and although Core & Main is not implicated as a defendant, the industry repercussions could potentially impact the company through reduced pricing power.
Despite the immediate challenges, Baird's analysis suggests that Core & Main presents a compelling opportunity for investors with a longer-term perspective. The firm believes that the stock has the potential to exceed $100 within a three-year span. It also highlights Core & Main's exposure to favorable secular and thematic trends, as well as its capacity to generate substantial cash flow.
Core & Main reported mixed second-quarter financial results. Despite experiencing project delays due to wet weather conditions, the company saw a 6% increase in net sales, reaching $1.96 billion, primarily driven by acquisitions. However, Core & Main has revised its full-year net sales and adjusted EBITDA projections downwards due to lower-than-expected end-market volumes.
The company also completed several acquisitions and announced two additional ones post-quarter. As part of its growth strategy, Core & Main announced a $500 million share repurchase program and expects to exceed its target of 60-70% conversion from adjusted EBITDA for the full year. Despite the setbacks, the company remains optimistic about long-term growth opportunities and plans to continue investing in organic growth, mergers, and acquisitions.
InvestingPro Insights
Core & Main Inc. (NYSE:CNM) has recently been in the spotlight following Baird's revised outlook. In light of the recent developments and market response, InvestingPro provides further insights that could be pivotal for investors considering CNM's stock. With a market capitalization of $7.94 billion and a P/E ratio of 18.53, the company is trading at a premium relative to its near-term earnings growth. Despite the challenges outlined in Baird's report, InvestingPro Tips highlight that management has been actively buying back shares, which may indicate confidence in the company's value proposition.
While the company's stock has experienced a significant downturn over the last week, with a price total return of -18.39%, it is also noted to be in oversold territory according to the RSI metric. This could suggest a potential rebound opportunity for investors monitoring technical indicators. Additionally, Core & Main has been profitable over the last twelve months, with a reported gross profit of $1.847 billion and an operating income margin of 10.66%.
Investors looking for more detailed analysis and additional InvestingPro Tips can find a comprehensive list at https://www.investing.com/pro/CNM, which includes further insights into Core & Main's financial health and stock performance. As of now, there are 10 additional tips available on InvestingPro, offering an extensive range of data points for a more informed investment decision.
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