Analysis: Core & Main (CNM)

What is driving CNM's growth besides M&A?

In the past 2.5 years the stock price of Core & Main, Inc. (NYSE:CNM), has increased dramatically, from an all-time low of $19.16 on 12/23/22 to an all-time high of $65.77 on 7/25/25. (CNM completed its IPO on 7/23/21, when the stock closed at $23.70.)

A major driver of CNM’s growth has been acquisitions. Since August 2017, Core & Main has acquired 42 companies. In 2024 alone, CNM acquired 11 companies at a cost of over $740 million. That kind of growth can’t continue indefinitely. So what else is driving growth? Let’s look at the fundamentals first.

Company

CNM is a national distributor of water, wastewater, storm drainage, and fire protection products and services. Operating about 370 branches nationwide, its customers include municipalities, private water utilities, and contractors in the residential and non-residential markets, working in both new construction and aging infrastructure.

Products are divided into four categories: (a) pipes, valves, and fittings; (b) storm drainage; (c) fire protection; and (d) meters. That first category, pipes-valves-fittings, represent 67% of the product mix. CNM calls itself a “critical link between 5,000+ suppliers and a diverse base of 60,000+ customers in an industry where size and scale matter.” [source: CNM website]

In his letter to shareholders in the CNM 2024 annual report, chairman Steve LeClair referred to the company’s “cash generative business model” and outlined three capital allocation priorities:

1. Invest in “our people, facilities, fleet, technology…to drive above market growth and enhance operational efficiency.”

2. Continue to acquire businesses in CNM’s “fragmented markets.”

3. Return capital to shareholders by repurchasing shares of CNM (amounting to $176 million in 2024).

Market & Industry

Non-discretionary demand for CNM’s products can only grow. Groundwater depletion, aging water infrastructure, and catastrophic weather events (especially more frequent and intense flooding) underscore “the critical need for more modern, resilient storm drainage infrastructure to protect communities and critical water systems. At the same time, demand for water is surging. Population growth is increasing water consumption for municipal and domestic use, while economic development – such as energy production and industrial expansion [not to mention AI data centers] – also demands substantial water resources.” [from CEO’s letter in 2024 Annual Report]

“Growth in our industry is driven by…municipal water infrastructure spending, water and wastewater utility rates, interest rates, housing starts, commercial construction, population growth, and other demographic trends.” [fiscal 2024 10-K]

Quantities

In June 2025, CNM was named to the Fortune 500 list for the first time, ranked #497. Fiscal-year 2024 revenue was $7.4 billion. In terms of 2024 total return to investors, CNM is ranked 151.

The highlights of CNM’s first quarter of fiscal 2025 were: (a) net sales increase of 10% year over year, and (b) gross profit increase of 9% YoY.

Operating results are seasonal, as cold weather reduces construction, maintenance, and repair activity. For example, cash flows are typically lower in the first and fourth quarters. Therefore, annual results are generally more useful than quarterly. 

CNM Fiscal Year 2024 Balance Sheet Highlights

(dollar amounts in millions)	2/2/25	1/28/24
Total assets	$5,870	$5,070
Asset: cash	$ 8	$ 1
Asset: goodwill	$1,900	$1,560
Total liabilities	$4,096	$3,550

CNM does not pay dividends. Its price to earnings ratio is approximately 30. Return on equity for 2024 was 24.5%, up from 10.3% in 2021. Short interest is roughly 7%. The current ratio is a healthy 2.0. In calendar-year 2025 so far, insiders (including the CEO, CFO, and general counsel) have traded net -764,000 shares.

In the past three months, three Wall Street analysts – RBC Capital, Wells Fargo, and Deutsche Bank – have issued BUY recommendations. Not one has issued a SELL.

M&A Strategy

Steve LeClair claimed, in his 2024 chairman’s letter, that CNM is the “acquirer of choice” in the water tech industry, and CNM has “a significant runway to continue driving growth through acquisitions.” The company maintains “a robust M&A pipeline.” CNM’s 2024 10-K estimates that the company’s net sales accounted for “approximately 19% of its $39 addressable market in fiscal 2024.”

Other Growth Drivers

One additional growth driver is new product adoption. CNM has identified underpenetrated product categories in large markets: geosynthetics used for erosion control, fusible high-density polyethylene (HDPE), smart metering, and others. “We believe that we can expand our presence in these underpenetrated product categories without investing significant capital or incurring substantial costs as a result of our existing branch network, favorable supplier relationships and low working capital requirements,” CNM says in its 2024 10-K.

CNM does not itemize M&A expenses in its consolidated statements of operations.

The other growth driver worth mentioning is “sequential margin expansion,” in the words of CEO Mark Witkowski. CNM plans to maintain healthy gross profit margins by pursuing initiatives such as (a) private label product expansion, (b) sourcing optimization, (c) data-driven pricing strategies, and (d) expansion of value-added products and services. 

Core & Main Gross Profit Margin (GPM)

Fiscal Year GPM

2024 26.7%

2023 27.0%

2022 27.0%

2021 25.6%

Tailwind or Headwind?

Municipal water infrastructure represents about 42% of CNM’s 2024 net sales, so federal investment in infrastructure could have a big effect on CNM’s bottom line. The company said optimistically in its 2024 10-K: “In the coming years, we expect, but cannot provide any assurance that, increased federal infrastructure investment to have a core focus on the repair, replacement and upgrade of municipal water infrastructure systems.” Well, President Trump just as likely will issue an executive order to pause funding disbursements under the Infrastructure Investment and Jobs Act and/or various other infrastructure programs, on a whim. So I would not rely on CNM’s optimism in this regard.

This is, in fact, one of the risk factors that CNM lists in its 10-K: “Municipal infrastructure spending depends largely on availability and commitment of public funds…Economic downturns in any of our markets could reduce municipal tax revenues and the level of infrastructure spending and construction activity and thus our net sales."

Recommendation: BUY

Financial statements show a company in good health and positioned to grow, though not along the same steep trajectory as in the past two years. Momentum may slow down over the next few years due to capricious and incompetent administration of federal funding for infrastructure projects.

Water Sector LTP issues a BUY recommendation on 8/8/25, as the stock closes at $63.95. We will be watching over the next few quarters to see if we need to revise our recommendation if (a) CNM’s acquisition spree proceeds too aggressively or (b) recessionary pressure in the economy curtails infrastructure spending.

© 2025 David M. Freedman