A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that specializes in drainage and fire protection products and services for municipalities, private water companies and residential markets.
Pat likes the company’s history of resilient demand and successful acquisitions as well as its strong performance since its IPO – the stock is up 64.9% since it began trading in July 2021. However, Pat remains wary of recent IPOs as insiders often use the listing to dump their holdings. Growth by acquisition also adds risks to the company.
CORE & MAIN INC. (Symbol CNM on New York; www.coreandmain.com) is a specialized distributor of water, wastewater, storm drainage and fire protection products to municipalities and residential and non-residential end markets across the U.S.
The St. Louis-based company offers customers over 200,000 items covering a wide range of specialized products and services. They include pipes, valves & fittings, storm drainage and erosion control solutions, fire protection products and fabrication services, and smart metering products and technology.
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Core & Main has a network of 335 branch locations across the U.S., which helps link its 5,000-plus suppliers with its 60,000-plus customers.
The company launched its IPO in July 2021, selling shares at $20 each.
Core & Main continues to make small acquisitions to spur growth.
In October 2022, the company completed the acquisition of Distributors Inc. The purchase price has not been disclosed. Established in 2018, Distributors Inc. provides fire protection contractors throughout Hawaii with quality products and fabrication services for new fire protection systems and the maintenance and repair of existing systems. Its facility is in Honolulu.
In June 2023, the company completed the purchase of J.W. D’Angelo Co., a full-service provider of fire protection and waterworks products with three locations in La Habra, Beaumont and Lakeside, California.
Since 1987, Dangelo Co. has provided contractors across Southern California with an extensive array of waterworks and fire protection products, including pipe, valves, fittings, post indicator valves, storm drain and sewer materials, and other related products. The experienced and knowledgeable staff serves customers from three locations in La Habra, Beaumont and Lakeside, California.
Shortly afterward in July 2023, Core & Main completed the acquisition of the assets of Foster Supply Inc. and R.P. Foster Inc., collectively known as Foster Supply. Foster Supply is a full-service provider of precast concrete structures, pipe, drainage materials and related geosynthetics products operating out of seven locations in Kentucky, Tennessee and West Virginia. The purchase price has not yet been disclosed.
Inner Circle: The acquisition spree still hasn’t stopped as earnings drop
Then on March 7, 2024, the company closed the acquisition of Dana Kepner Company LLC, a distributor of water, wastewater, storm drainage, and geotextile products, as well as specialty tools and accessories. The purchase price has not yet been disclosed.
Based in Denver, Dana Kepner operates 19 locations across eight U.S. states, including its home state of Colorado. The distributor sells pipes, valves, fittings, water meters, and meter accessories. It has been in business since 1933.
Meanwhile, on March 25, 2024, the company announced it would acquire EGW Utilities Inc., a distributor of products to underground utility contractors and municipalities. The Texas-based company has provided products to the underground utility industry since 2001. The purchase price has not yet been disclosed.
On April 8, 2024, Core & Main agreed to acquire all the assets of the Geothermal Supply Company Inc. Geothermal Supply is a Kentucky-based distributor and fabricator of high-density polyethylene (HDPE) pipe and other related products, serving the geothermal, water and sewer industries. The purchase price has not yet been disclosed.
In the three months ended April 28, 2024, Core & Main’s revenue was $1.74 billion up 10.6% from a year earlier. The company earned $101 million in the quarter. That was down 24.1% from the year-ago quarter. On a per-share basis, earnings declined at a slower pace of 2.0%, to $0.49 due to more shares outstanding.
Core & Main’s outlook is positive. The company continues to experience steady demand across each of its end markets and product lines.
As a recent IPO, Core & Main makes us wary—new issues come to market when it’s a good time for the company and/or its insiders to sell. That’s not necessarily, and often isn’t, a good time for you to buy.
However, the company has a strong track record in established markets and has an attractive long-term outlook.
Recommendation in Pat’s Inner Circle: Core & Main Inc. is a hold.
