Today we're going to take a closer look at large-cap Industrial company Ferguson, whose shares are currently trading at $149.39. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Ferguson's Valuation Is in Line With Its Sector Averages:
Ferguson plc distributes plumbing and heating products in the United States and Canada. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Ferguson has a trailing 12 month P/E ratio of 16.6 and a P/B ratio of 6.48.
When we divide Ferguson's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -3.11. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Wider Gross Margins Than the Industry Average of 21.94%:
| 2019-07-31 | 2020-07-31 | 2021-07-31 | 2022-07-31 | |
|---|---|---|---|---|
| Revenue (MM) | $22,010 | $21,819 | $22,792 | $28,566 |
| Gross Margins | 29.3% | 29.4% | 30.6% | 30.6% |
| Operating Margins | 6.4% | 7.0% | 9.0% | 9.9% |
| Net Margins | 5.03% | 4.4% | 6.62% | 7.43% |
| Net Income (MM) | $1,108 | $961 | $1,508 | $2,122 |
| Net Interest Expense (MM) | -74 | -144 | -144 | -111 |
| Net Interest Expense (MM) | -$74 | -$144 | -$144 | -$111 |
| Depreciation & Amort. (MM) | -$288 | -$602 | -$563 | -$301 |
| Earnings Per Share | $4.78 | $4.24 | $6.55 | $9.0 |
| EPS Growth | n/a | -11.3% | 54.48% | 37.4% |
| Diluted Shares (MM) | 232 | 225 | 225 | 205 |
| Free Cash Flow (MM) | $872 | $1,566 | $1,295 | $859 |
| Capital Expenditures (MM) | -$418 | -$302 | -$246 | -$290 |
| Net Current Assets (MM) | $159 | -$1,008 | -$571 | -$1,445 |
| Current Ratio | 1.72 | 1.7 | 1.67 | 1.65 |
| Long Term Debt (MM) | $2,292 | $2,635 | $2,528 | $3,679 |
| Net Debt / EBITDA | 0.7 | 0.66 | 0.67 | 1.21 |
Ferguson has growing revenues and decreasing reinvestment in the business, wider gross margins than its peer group, and average operating margins with a positive growth rate. The company also benefits from a strong EPS growth trend, consistent free cash flow, and healthy leverage. Furthermore, Ferguson has a decent current ratio.
