Core & Main

We will discontinue analyst coverage of Core and Main on or about Oct. 5, 2026. 

We provide analyst research and ratings on over 1,600 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are maintaining our $60 fair value estimate for narrow-moat-rated Core & Main following second-quarter earnings.

We forecast revenue growth of midsingle digits over our five-year forecast period. Our forecast assumes approximately 2 percentage points of growth per year from acquisitions, with the remainder achieved through organic growth. We assume price is a positive contributor in the low-single-digit range per year, while acknowledging wider fluctuations within specific product categories. Roughly 25%-30% of Core & Main’s revenue comes from commodity-based pipe products, such as PVC and ductile iron, which tend to exhibit higher pricing fluctuations compared with the rest of its portfolio. Our forecast assumes low single-digit volume gains per year, driven by end-market growth and modest market share gains.

On a margin basis, we expect continued improvements moving through to the midcycle portion of the forecast period. We forecast EBITDA margins bottomed in 2025 at 12.2% and expand to 12.9% by 2028. This forecast assumes modest gross margin expansion, driven by private label initiatives and operating expense leverage resulting from higher sales volumes.

We assign Core & Main a Morningstar Economic Moat Rating of narrow. We believe Core & Main benefits from a cost advantage (given its purchasing scale) as well as an intangible asset advantage (via product access) over smaller competitors within the waterworks distribution industry.

In general, industrial distribution is highly fragmented. However, waterworks distribution, which is Core & Main’s market focus, tends to have a slightly higher degree of concentration than other industrial distribution end markets. Core & Main, along with peer Ferguson, is the only other waterworks distributor with a national footprint. We estimate both firms have a market share in the low- to mid-20% range, with the remainder of the market composed of numerous regional, local, and niche distributors.

Waterworks distributors serve a vital role in connecting suppliers to a highly fragmented customer base, consisting of municipal water utilities as well as contractors (new construction). Principal competitive factors in the industry include product breadth, availability, pricing of products and services, as well as select value-added services.

We believe Core & Main benefits from a cost advantage due to its scale compared with smaller competitors. As one of the largest waterworks distributors, Core & Main benefits from preferential supplier pricing, global product sourcing, and efficient and scalable distribution networks. Larger distributors can leverage their purchasing scale to source products and take advantage of volume-based rebates and other sales incentives, resulting in better gross profit margins compared with smaller distributors. For example, Core & Main estimates it can improve the gross margins of smaller distributors by approximately 300 basis points upon acquisition via its procurement practices.

Intangible assets also underpin Core & Main’s narrow moat via its product access. Limited distribution rights are common in the waterworks industry, with two-thirds of Core & Main’s sales derived from products that have limited or exclusive distribution rights. Product access—having access to the full suite of waterworks products (pipes, valves, fittings, hydrants)—is a barrier to entry for new entrants, as customers, namely water utilities, prefer distributors with a full range of product categories. Additionally, local specifications and brand preferences can influence water utilities’ purchasing decisions. Product categories such as brass fittings and water meters, where distribution is often exclusive, can give distributors with access to specified brands a competitive edge.

Core & Main has a national presence, but its customers consist of thousands of local municipal water utilities and contractors. So, we believe its moat can vary greatly from one geographic region to another. For example, in a metro area where Core & Main commands top market share, we believe its associated operating margins are several hundred basis points higher than in a market where its market share is less dominant. In markets where it has a leading market share, it often has access to key product groupings (product access), which can provide it with a full suite of products to meet local specifications, enabling higher pricing power.

We don’t believe Core & Main would warrant a wide moat given its relatively low percentage of maintenance, repair, and operations sales, which typically command higher margins for industrial distributors. We estimate that roughly 80% of CNM’s sales are project-based, with relatively infrequent purchases from customers who come in and buy materials off the shelf. These spot buying activities typically result in higher margins for distributors, given that the availability of supply is more important than price. Additionally, competitive bidding processes, which are common practice among municipal water utilities, represent approximately 40% of sales, limiting the potential for outsize margins.

Core & Main has leading market share within the waterworks distribution landscape.

The distribution landscape is relatively fragmented, providing opportunities for Core & Main to consolidate the market via acquisitions.

Increasing private-label sales represents a long-term margin expansion opportunity.

Core & Main’s highly acquisitive nature presents risks, should acquisitions fail to deliver planned results.

The majority of Core & Main’s sales are project-based, which limits sales from higher-margin spot-buying activity.

Approximately 30% of sales are associated with commodity products, which can be subject to price fluctuations.