Shares in water infrastructure distribution company Core & Main(NYSE: CNM) rose 13.7% in the week to Friday morning, accordingtodataprovidedbyS&P Global Market Intelligence. The move comes after the release of its fourth-quarter earnings. Investors liked what they saw, and the stock is now up 43% in 2024 and 168% over the last year.
Core & Main's challenging 2023
It might seem churlish to describe last year as "challenging," but the company's full-year sales only rose 0.8% to $6.7 billion in 2023. Moreover, after a couple of years of solid growth, the company's end markets slowed last year, partly in response to a natural growth correction and rising interest rates putting the brakes on residential construction activity.
Core & Main's end markets are split between the relatively stable municipal market (39%), the nonresidential market (39%), and the residential market (22%), and slowing housing starts have hit the latter.
Still, the company's prospects look excellent. It is a leader in a highly fragmented market of water and wastewater products (valves, pipes, meters, storm drainage, and fire protection) and has a growth opportunity from consolidating its end markets and expanding geographically at the same time by buying smaller distributors.
If you doubt the power of this opportunity, look at Watsco and its extraordinary record of generating value for shareholders in the heating, ventilation, and air conditioning industry.
Image source: Getty Images.
Core & Main's growth strategy
CEO Stephen LeClair recently pointed out, "We welcomed ten new companies to Core & Main during and after the year, deploying $780 million to acquire approximately $700 million of historical annualized net sales."
More acquisitions are planned for 2024, and LeClair sees a pathway to sales of $10 billion by 2028 through a combination of $1 billion in growth in its end markets (partly stimulated by infrastructure spending), Core & Main exceeding market growth by $1 billion, and $1 billion in added sales through acquisitions.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Watsco. The Motley Fool has a disclosure policy.
