Best Stocks: An under-the-radar industrial forming a textbook cup-and-handle pattern

Ferguson Enterprises (FERG) has demonstrated a significant turnaround, recovering from a December 2024 earnings dip marked by declining margins. The company's June earnings report exceeded expectations, driven by 20% year-over-year EBITDA growth, a 20 basis point improvement in operating margins to 9.4%, and 4.3% net sales growth. This fundamental improvement is bolstered by strategic cost reductions estimated to save $100 million annually and substantial share buybacks, with management projecting continued low to mid-single-digit sales growth. Technically, FERG is forming a bullish cup-and-handle pattern, suggesting potential for further upside momentum with a key breakout level between $220-$225.

Analysis

Ferguson Enterprises (FERG) has demonstrated a significant operational and financial turnaround following a challenging period in late 2024. After a December earnings report that saw operating margins contract to 9.1% and a subsequent stock price decline below its 200-day moving average, the company's recent June results signal a strong recovery. FERG surpassed Wall Street expectations, delivering 20% year-over-year EBITDA growth and a 4.3% increase in net sales. Critically, operating margins expanded by 20 basis points to 9.4%, supported by a restructuring program that eliminated 800 positions and is projected to yield $100 million in annualized cost savings. Management's confidence is further underscored by a robust capital return policy, including a 5% dividend increase, $759 million in shares repurchased in 2025, and an additional $1.1 billion authorization. While forward guidance suggests more modest low to mid-single-digit sales growth with stabilizing margins, the technical picture is constructive, with the stock forming a bullish cup-and-handle pattern and consolidating within a tight $220-$225 range.

Key Decisions for Investors

• Given the improving fundamentals, successful cost restructuring, and aggressive capital return program, investors could view the current consolidation as a constructive setup for potential upside.
• Monitor the $220-$225 price range closely, as a decisive breakout above this level, particularly on strong volume, would serve as a technical confirmation of the bullish cup-and-handle pattern.
• Utilize the $200 price level as a key risk management indicator; a sustained break below this support would invalidate the current bullish thesis and could signal a trend reversal.