Core & Main Investor Day Updates
Core & Main laid out its vision for the next five years in a recent investor day
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In my recent Flyover Stocks profile, I discussed some secular tailwinds behind the water infrastructure distributor Core & Main’s (CNM) business. These include addressing the secular underinvestment in the U.S. water and drainage infrastructure and the need for more developed land to build residential, commercial, and industrial structures.
Core & Main recently held an investor day at which they laid out their five-year outlook for growth, profitability, and M&A.
At investor day, company president Jack Schaller mentioned over 800 water main breaks occur in the U.S. daily.
Indeed, since publishing my report one week ago, I have received three text messages from my tiny suburban town alerting me to a water main break, a water leak, and a water line repair occurring in our three-square-mile district.
It’s astonishing how much repair work there is on the table.
As one of only two nationwide water infrastructure distributors along with Ferguson (FERG), Core & Main is in a prime position to capitalize on growth in this market. Each company accounts for about 17% of Core & Main’s addressable markets.
While neither company benefits from an oligopolistic industry structure at present, I expect both companies to continue to roll up smaller, independent distributors over time.
One of the factors I hadn’t appreciated was how different the needs can be for water infrastructure depending on location. As the slide below shows, there’s no national fire hydrant standard, and various states and municipalities can have different codes and regulations. As such, each distributor location has to manage inventory and provide know-how to suit local needs.
Core & Main’s stock was up 6% following the investor day, with the most significant positive surprise coming from an upgraded five-year outlook for growth and profitability. The lingering concern among investors is that Core & Main achieved improved margins on the back of a low-interest rate-fueled construction boom. Management’s opinion, however, is different.
Let’s start with the improved margin outlook.