Ferguson Enterprises (NYSE: FERG) saw its shares climb 2.8% on Monday after the company raised its full-year 2026 outlook, driven by stronger-than-expected activity in the non-residential construction sector. The stock closed at $263.78, up $7.08, ahead of Tuesday's premarket session.
The company's second-quarter results showed a 4.6% increase in net sales to $8.75 billion, while adjusted earnings per share rose 5.3% to $3.39. The standout performance came from the U.S. non-residential segment, which posted an 8% revenue increase, quadruple the 2% growth seen in residential markets.
This growth breakdown is significant for investors, as both segments account for roughly half of Ferguson's domestic sales. The data suggests that non-residential demand contributed approximately four of the five percentage points of U.S. growth, with residential adding just one point.
Financial Highlights
The company's gross margin contracted by 20 basis points to 31.0%, while adjusted operating profit grew 2.9% to $932 million. Diluted EPS rose 6.9% to $3.43, and adjusted diluted EPS climbed 5.3% to $3.39. Net debt to adjusted EBITDA ticked up to 1.3x from 1.2x.
Ferguson noted that the prior-year margin comparison benefited from exceptionally favorable supplier pricing timing, which did not repeat this quarter.
CEO Commentary
Chief Executive Kevin Murphy highlighted the company's resilience, stating, "We delivered another strong quarter of non-residential growth and we returned to growth in residential despite the challenging market backdrop." This sentiment was echoed in the company's decision to lift its sales guidance to mid-single-digit growth for the year.
Revised Outlook
Ferguson now expects net sales growth in the mid-single digits, up from the prior low-to-mid single-digit range. The adjusted operating margin guidance was narrowed to 9.5%-9.8%, with the lower end raised by 10 basis points. Capital expenditure guidance was increased to $375-$425 million, with the midpoint up $25 million.
The updated forecast does not include the pending $1.6 billion acquisition of FloWorks, which is expected to close in the third quarter. FloWorks, a distributor serving data centers, semiconductor fabrication, and industrial markets, is projected to contribute approximately $1 billion in annual sales and $45 million in synergies.
Cash Flow and Valuation
Operating cash flow for the first half declined to $716 million from $1.12 billion, reflecting increased investment in acquisitions and capital expenditures. Ferguson spent $583 million on acquisitions and $234 million on capital projects during the period.
Monday's stock advance added approximately $1.37 billion to Ferguson's market capitalization, though shares remain 2.9% below the 52-week high of $271.64. The stock trades at 26.5 times forward earnings, a premium that underscores heightened investor expectations.
Analyst Sentiment
Wall Street remains largely bullish, with eight analysts rating the stock a Buy and two a Hold, and no Sell recommendations. The consensus 12-month price target stands at $292.83, implying an 11% upside from Monday's close. Notable recent ratings include a Buy from Barclays with a $297 target and a Buy from Wells Fargo at $285.
Risks to Watch
Key risks include a potential slump in housing demand that could derail the residential recovery, integration challenges from the FloWorks acquisition, and rising leverage at 1.3x adjusted EBITDA. Additionally, any slowdown in large-project bookings would directly impact the primary growth engine.
Investors will be watching November's quarterly report to see if the six-point growth differential between non-residential and residential persists and whether cash flow stabilizes. Ferguson's next earnings release is scheduled for November 9.
