Core & Main (CNM): Is the Premium Valuation Worth the Wait?

The water infrastructure sector is poised for growth, driven by aging infrastructure renewal and federal spending boosts like the Infrastructure Investment and Jobs Act. Core & Main (NYSE: CNM), a leading distributor of waterworks and fire protection products, trades at a valuation premium relative to its peers—yet its discounted cash flow (DCF) model suggests it’s undervalued by 29.5%. Is this premium justified, or does the upcoming earnings report hold the key to unlocking its potential?

Valuation: A Premium Price for Growth?

CNM’s trailing P/E of 24.3x significantly outpaces the sector average of 19.8x, and lags only behind its peer Applied Industrial Technologies (22x). Its PEG ratio of 1.9x—versus a sector average of 0.03x—highlights concerns about whether its growth prospects can justify its price. Analysts estimate a fair P/E of 23.7x, implying modest overvaluation, but the DCF-derived fair value of $74.70 suggests the stock is 29.5% undervalued at its current price of $52.69.

The discrepancy arises from CNM’s strategic dominance: it controls 30% of the U.S. waterworks distribution market, with a product portfolio spanning valves, pumps, and fire suppression systems. Its recent acquisitions, such as Multi-Water, have expanded its footprint in high-growth regions, driving 11% YoY sales growth in 2024. Yet, insider selling—notably CEO Stephen LeClair’s $10.98M sale in 2024—raises questions about management’s confidence.

Earnings Catalyst: Can Q1 Deliver Growth Credibility?

CNM’s June 10, 2025 earnings report for Q1 2026 (calendar Q1 2025) will test whether its premium is sustainable. Analysts project $0.53 EPS and $1.85B revenue, representing 9.6% EPS growth and 6% revenue growth year-over-year. While these figures align with its long-term 2–4% organic growth guidance, the stock’s PEG ratio hinges on whether growth accelerates.

The Q1 results must also address margin pressures. In Q4 2024, gross margins dipped slightly due to inflation-driven cost headwinds. If CNM can demonstrate margin resilience—or even expansion—through operational efficiencies, its PEG ratio could normalize, alleviating valuation concerns.

Risks and Rewards: The Tipping Point

• Upside: A beat on EPS (e.g., $0.55+) or revenue above $1.87B would signal robust execution, potentially lowering the PEG ratio and driving a rerating. The DCF model’s $74.70 fair value implies 41% upside, making even a partial revaluation compelling.
• Downside: A miss on EPS or guidance cuts could amplify valuation fears. The stock’s RSI of 59.84 hints at overbought conditions, but technical strength (e.g., closing above its 200-day moving average) suggests momentum buyers are still active.

Investment Thesis: Act Now, Monitor Earnings

CNM’s valuation is a high-beta bet on infrastructure growth. With $7.75B in FY 2026 revenue guidance and 14.8% EPS growth expected, the stock’s DCF undervaluation and sector-leading position make it a contrarian play. The June earnings report is the critical test:

• Buy: If earnings beat expectations and margins hold, the stock could surge toward its $59.99 analyst target (14% upside).
• Hold: A miss or cautious guidance might prompt a pullback, offering a lower entry point.

Final Call: Proceed with Caution, but Proceed

While CNM’s premium valuation is risky, its monopoly-like position in water infrastructure and DCF-supported undervaluation make it a must-watch name in the sector. The June earnings report is the catalyst investors need to confirm whether this premium is justified—or a warning sign. For aggressive investors, now is the time to position ahead of the data.

Action Item: Allocate a 5–7% portfolio position in CNM ahead of earnings. Set a stop-loss at $48 and a target of $65 if the Q1 report delivers. The infrastructure tailwind won’t wait—act before the market does.