Index exits put Core & Main in focus

Core & Main (CNM) has come under the spotlight after being removed from several Russell growth indices, a change that can trigger forced selling and heavier trading as index-linked funds adjust positions.

At the same time, Core & Main is tapping the bond market, with subsidiary Core & Main LP launching a US$750 million Senior Notes offering due 2034. That cash is expected to retire part of an existing senior term loan and support broader corporate priorities, including potential acquisitions and share repurchases.

These index removals and the new bond issue come against a weaker share price backdrop, with Core & Main’s 30 day share price return down 12% and year to date share price return down 14%. Its 3 year total shareholder return remains positive at 46% despite a 27% decline in the total shareholder return over the past year, suggesting recent momentum has cooled.

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Bulls see Core & Main’s index exit and bond raise as a temporary overhang on a solid water infrastructure distributor, while bears see fading momentum and fresh leverage. Which view holds up once you run the numbers?

Most Popular Narrative: 24.5% Undervalued

On the most followed narrative, Core & Main’s fair value of $60.56 sits well above the last close at $45.75, putting the current selloff in a very different light.

Core & Main anticipates generating strong operating cash flows, enabling further investment in organic growth and M&A, in addition to returning capital to shareholders through share repurchases, positively impacting earnings per share.

Want to see what is baked into that cash flow story? The narrative leans on steadier revenue, wider margins and a richer earnings multiple. The exact mix might surprise you.

Result: Fair Value of $60.56 (UNDERVALUED)

However, Core & Main’s story can change quickly if higher interest expenses weigh on earnings or if a slowdown in construction activity softens demand across key end markets.

Another View: Core & Main through the SWS DCF model

The analyst narrative presents Core & Main as about 24.5% undervalued at $45.75 relative to a fair value estimate of $60.56. In contrast, the SWS DCF model estimates future cash flow value at $33.67, which suggests the stock appears expensive when evaluated from this perspective. When cash flow-based and multiple-based frameworks conflict, which approach do you consider more important?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Core & Main for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With Core & Main showing both pressure points and bright spots, this is a moment to move fast, dissect the data, and weigh the 5 key rewards and 1 important warning sign.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.