We came across a bullish thesis on Core & Main, Inc. (NYSE:CNM) on ValueInvestorsClub by yellow. In this article, we will summarize the bulls’ thesis on CNM. The company’s shares were trading at $48.00 when this thesis was published, vs. the closing price of $52.53 on Apr 25.Why Epsilon Energy Ltd (EPSN) Up the Most So Far in 2025

A pipeline of natural gas cutting through a rural landscape.

CNM distributes water, wastewater, storm drainage, and fire protection products and related services in the United States. It has a 20% market share in the US in a highly fragmented industry where 60% is covered by independents.

While pipes account for most of the sales, gross margins can be as low as 5%. The profits are largely driven by specialized products that offer a gross margin 5x more than pipes. This is the reason why a 10% decline in PVC prices did not hurt CNM’s profitability from 2022 to 2024. To put numbers into perspective, a 50% decline in PVC pipe revenue would reduce gross profits by only ~3%. Therefore, worries about declining pipe revenue impacting the bottom line do not hold good.

2024 has been a year in which water infra projects had to be stalled due to bad weather. This led to the management reducing FY2024 guidance, leading to a 15% crash in stock price on the same day. These projects are not discretionary in nature and are expected to resume in 2025. The $50 billion allocation towards water infra projects in the Infrastructure and Investment Jobs Act is also unutilized due to bureaucratic delays. The funding should provide further tailwinds to CNM’s business in 2025.

High interest rates are also one of the reasons why project developers have not been keen on expediting funding. With rate cuts around the corner, one can expect more funding and better demand for products in water projects. This was hinted at the earnings call of Ferguson whose waterwork division is a direct competitor of CNM.

CNM should realize an EBITDA of $1 billion in 2025, rising to $1.5 billion in 2028. Using Ferguson’s EV multiple, the 2024-2028 EV comes to $15-23 billion, reflecting a share price of $60-100. Based on the current price, the potential upside is in the range of 14-90%.

While we acknowledge the potential of CNM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CNM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.

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