The recent underperformance in Ferguson Plc (LON:FERG) shares is overdone, JP Morgan Cazenove said as it upgraded its recommendation on the stock.
Ferguson shares dropped 7.6% on Tuesday after the plumbing and heating products distributor said it expects full-year profit to reach the lower end of market forecasts.
The company said revenue growth has slowed in the second half after a strong first half.
READ: Ferguson to shift headquarters to the UK as it sees profits at lower end of market forecasts
Organic revenue rose 6.5% to US$10.6bn in the first half, as a strong performance in the US offset a decline in the UK.
Shares have fallen more than 15% in the past 12 months amid concerns about tough trading conditions in the UK.
“We believe the recent underperformance and yesterday’s sell-off are overdone,” JP Morgan said.
“We see scope for a material re-rating through H2, as we believe new estimates will prove to be sensibly based, we see scope for US lead-indicators to start improving, and we expect scope for further buybacks to fall into view, making what is already a discounted valuation look particularly attractive. “
JP Morgan raised its rating on Ferguson to ‘overweight’ from ‘neutral’ and left its target price at 5,950p.
The broker sees 24% upside potential to its target price.
In mid-morning trading, shares in Ferguson edged up 1.5% to 4,882p.