Wolseley share price surges on long-term margin optimism

Wolseley’s (LON:WOS) share price rose more than one percent today, supported by a bullish note from JPMorgan Cazenove. The bank’s broking arm lifted its stance on the blue-chip plumbing supplies group, due to “increasing faith” in its ability to drive year-on-year margin expansion, on a long-term basis, through “continued operational improvements and greater leverage of its scale”.

Having cut its rating in the first quarter, JPMorgan today upgraded Wolseley’s shares to ‘overweight’ from its previous ‘neutral’ recommendation and hiked its price target to 4,800p from 4,100p. It has also added Wolseley to its Analyst Focus List. The broker further forecast three-year compound annual earnings per share growth of 13 percent, which could become 18 percent with possible future bolt-ons and buybacks. This was “largely driven by our assumption that the US continues to take share and see margin expansion – the US is now close to 80% of profits, and the same proportion of growth”.
Last month, analysts at Barclays said that there was potential for Wolseley’s US business to beat their estimates in the coming years if the strategy to drive profitable gains in market share continues to be successful. “We learned that the company believes its US markets will grow in a 4%-6% range, is confident it will keep on outperforming the market, that margins should continue to climb and that there is healthy pipeline of acquisitions,” Barclays said.
German bank Berenberg was also upbeat on Wolseley, pushing its target to 4,600p from 4,300p and repeating a ‘buy’. Investors hailed the analysts’ optimistic notes, sending the company’s share price over one percent higher today. As of 14:27 BST, Wolseley was trading 1.10 percent higher at 4,307.00p. The FTSE 100-listed group is almost 17 percent up in the year to date.
As of 15:05 BST, Wednesday, 15 July, Wolseley plc share price is 4,304.50p.