UBS starts Core & Main at Buy, sees growth picking up

UBS initiated coverage on Core & Main Inc (CNM) with a Buy rating and a $65 price target, citing an attractive entry point following a recent stock pullback. The firm projects 8% annual sales growth through fiscal 2027, significantly exceeding consensus, driven by improving residential and non-residential construction activity and firm pricing trends, while dismissing near-term operating cost inflation concerns. UBS forecasts adjusted EBITDA of $1.19 billion in FY27, above market and consensus estimates, implying approximately 27% upside from current levels.

Analysis

UBS has initiated coverage on Core & Main Inc. (CNM) with a Buy rating and a $65 price target, framing the stock's recent pullback as an opportune entry point. The firm's bullish thesis is underpinned by a projection of approximately 8% annual sales growth through fiscal 2027, a figure that is double the current consensus expectation of 4%. This optimistic outlook is attributed to an anticipated acceleration in residential and non-residential construction activity, further supported by stimulus measures and firmer pricing trends. UBS dismisses near-term concerns regarding operating cost inflation as "overblown," forecasting an annual EBITDA margin expansion of more than 50 basis points over the next two years. Consequently, the firm's adjusted EBITDA forecast for FY27 is $1.19 billion, exceeding both market and consensus estimates. The $65 price target is derived from a valuation of 12 times forecasted FY27 EBITDA, a multiple consistent with the stock's historical average, implying a potential upside of around 27% from current levels.

Key Decisions for Investors

• Investors with a bullish view on a U.S. housing and construction market rebound should consider the UBS initiation as a significant positive catalyst for CNM, given the forecast for sales growth to double consensus estimates.
• The core of the investment thesis rests on margin expansion; therefore, it is critical to monitor CNM's upcoming earnings for evidence of the projected 50+ basis point annual EBITDA margin improvement to validate the bank's non-consensus view on inflation.
• Given the stock's recent pullback, investors might view this as an attractive entry point, but should be aware that the thesis relies on a construction recovery materializing in 2026-2027 and the firm's ability to manage costs effectively.