TRG | The Bottom Line – 4/12

On the heels of the publication TRG’s Q1’24 Res and Non-res Products Survey this week, the TRG team hosted a field trip with Ferguson (FERG). Critical to TRG’s research process is getting out in the field, and this week’s field trip helped foster better understanding not only the nuances of FERG’s business model but also gaining perspective on current demand trends. Given all the recent focus on distribution in the construction space, our FERG field trip was well-timed. TRG’s survey takeaways pointed to a slower January and February with activity picking up in March. Industry participants believe March results are more reflective of true demand in 2024, as weather hampered the beginning. That said, some are waiting to see what April holds to gauge if March is closer to reality. Pricing is a modest positive, but volumes remain relatively stagnant, leading many to believe 2024 will be a flattish year. Channel inventory is fairly normalized for many products (sell-out matching sell-in), but the channel is not increasing stocking levels broadly given the sluggish outlook. Many companies in the resi and building products space have seen their stock prices rally strongly since bottoming in late October 2023. As such, valuations are less compelling broadly. At this juncture we are looking for companies with more exposure to starts, secular share gain opportunity allowing for long-term outperformance of the housing market, and even companies that have commodity exposure to SF starts (e.g., lumber and OSB rising dramatically). We also are looking for companies who have multiple expansion opportunity. We also favor companies with non-res exposure.