Core & Main, Inc. (CNM) | The Buildout — AI Infrastructure
The Verdict
Core & Main is a distributor, one layer removed from the construction site. It buys pipe, valves, fittings, hydrants, meters, drainage structures and fire-protection equipment from manufacturers, stocks them in local branches, and sells them with project management, staging and installation support. The AI-infrastructure connection is indirect: data center construction needs water, wastewater, storm drainage and fire protection infrastructure, and Core & Main supplies it from the earliest stages of site development. Management describes data center work as looking a lot like the core business, just requiring a higher level of service. Residential and light commercial construction are the weak parts of the mix.
| Market Cap | — |
| Revenue (TTM) | $7.7B |
| Revenue Growth | −0.5% |
| EBITDA Margin (TTM) | 12.1% |
| Net Debt | $2.4B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- The data center project contribution nearly doubled year over year and moved from low single digits to a mid-single-digit share of total sales, and to a high-single-digit share of nonresidential work.
- The company is one of only two national distributors in a market it estimates at approximately $44B in annual sales; municipal work is about 44% of sales and management cites roughly 95% state and local funding.
- Capital return: nearly $2B deployed to repurchase approximately 58M shares since the IPO, almost 25% of the shares outstanding at IPO.
- The M&A pipeline has "meaningfully accelerated," with several opportunities advanced through the LOI stage and a long-term target of 2-4 points of annual sales growth.
- Private label was about 5% of fiscal 2025 sales, up about 100 bps, with a stated path to at least 10% over time.
What We’re Watching
- The senior notes offering is tagged in the watch-event record as increasing debt and interest expense, while management frames it as refinancing that extended maturities. No size, coupon or maturity is in the material, and leverage moved from 2.2x to 2.3x.
- Gross margin moved from 27.2% in Q1 FY2026 to about 26.7% in Q2, and the full-year guide requires a slight improvement; management explained the SG&A offset rather than the specific mix drivers.
- Smart utility grew 1% in Q2 with volume flat. Miami-Dade volume is expected late FY2026 with a full run rate in 2027, and the Connecticut Water win was described only as "a pretty substantial scale," with no dollar value disclosed.
- Management acknowledged it had been behind its larger national competitor in the Northern Virginia and Texas data-center markets — "areas that we're investing in, I'd say, rapidly to kind of catch that."
The thesis is intact but not yet accelerating. The mix is rotating toward municipal infrastructure and large nonresidential data center work, and the top line has moved from -7% to flat to +2.5% across three quarters while the guide held unchanged twice. That pattern is consistent with management's own framing that end markets are roughly flat and the improvement is mix-driven and back-half weighted. The open question is whether this is the start of a demand cycle or a comparison-and-mix effect — and whether the LOI-stage M&A pipeline converts into the 2-4 points of annual sales growth management targets.
Earnings Beat
Net sales of $2,145M rose 2.5% year over year, with volume, price and acquisitions each contributing positively. Gross margin was 26.7%, similar to the prior year, and EBITDA was $272M, or 12.7% of sales. The standout was the data center project contribution, which nearly doubled year over year.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $2.1B | $1.9B | $2.1B | +2.5% |
| Gross margin | 26.7% | 27.2% | 26.8% | -10bps |
| EBITDA | $272M | $224M | $261M | +4.2% |
| EPS | $0.74 | $0.55 | $0.68 | +10.2% |
| Data center projects | ≈mid-single-digit % of total sales | n/a | n/a | Nearly doubled YoY |
We've seen our data center project run rate… doubled this quarter year-over-year… taken it from, I would say, low single digit to the mid-single-digit range in terms of our total business.— Brad Cowles, President, 2026-09-09
Management tone: The tone carried over from the first quarter, but the source of the profit bridge changed. In Q1 the story was gross-margin-led growth on a flat top line; in Q2 the top line grew 2.5% and SG&A leverage carried the EBITDA margin expansion while gross margin was flat. Management was direct on mechanics and candid on negatives — it said PVC price increases did not stick, and it volunteered that about two-thirds of fire protection growth was steel pricing. It reframed timing questions on smart utility, large-project lumpiness and federal funding rather than declining them, and it acknowledged a data-center competitive gap versus its larger national competitor in Northern Virginia and Texas. Management described end markets as "roughly flat overall."
Management Guidance
FY2026 guidance is net sales of $7,800M to $7,900M (2%-3% growth), adjusted EBITDA of $950M to $980M, and adjusted EBITDA margin of 12.2% to 12.4%. Management affirmed the guide unchanged for the second consecutive quarter. It expects the back-half adjusted EBITDA rate to be positive year over year and mostly driven by the fourth quarter, plus a little improvement in full-year gross margin and a little in SG&A. Segment framing is municipal up low single digits, nonresidential flattish to maybe up slightly, and residential down mid-single digits for the year.
Trajectory
Revenue went from $1,581M in Q4 FY2025 (-7%) to $1,910M in Q1 FY2026 (essentially flat year over year) to $2,145M in Q2 FY2026 (+2.5%), with volume, price and acquisitions each positive in the latest quarter. Gross margin moved 27.1% to 27.2% to 26.7%, while EBITDA margin moved 10.4% to 11.7% to 12.7%, so a roughly flat SG&A base carried the latest expansion rather than gross margin. Data center projects nearly doubled year over year, and fire protection sales rose 14%, about two-thirds of it steel pricing. Residential was down high single digits and light commercial and retail work stayed weak, so the improvement is coming from mix against end markets management describes as roughly flat.
The Model
The model projects FY+1 revenue of $7,895M with EBITDA of $967M (12.245% margin), and FY+2 revenue of $8,400M with EBITDA of $1,046M (12.45%). The near term is anchored by a reaffirmed guide of $7,800M to $7,900M in net sales and $950M to $980M in adjusted EBITDA, a flat SG&A base, and a mix rotating toward municipal and large nonresidential work. FY+2 leans on the 2027 queue: Miami-Dade reaching full run rate, Connecticut Water starting up, acquisitions closing against a long-term 2-4 point contribution target, and greenfield locations maturing.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $7.6B | $7.9B | $8.4B |
| YoY Growth | — | +3.2% | +6.4% |
| EBITDA | $912M | $967M | $1.0B |
| EBITDA Margin | 11.9% | 12.2% | 12.4% |
Projections are the median of 4 independent model runs. The model’s revenue sits 8.3% above analyst consensus.
FY2026 guidance is net sales of $7,800M to $7,900M (2%-3% growth), adjusted EBITDA of $950M to $980M, and adjusted EBITDA margin of 12.2% to 12.4%. Management affirmed the guide unchanged for the second consecutive quarter. It expects the back-half adjusted EBITDA rate to be positive year over year and mostly driven by the fourth quarter, plus a little improvement in full-year gross margin and a little in SG&A. Segment framing is municipal up low single digits, nonresidential flattish to maybe up slightly, and residential down mid-single digits for the year.
What Could Go Right — and Wrong
- M&A converts: several opportunities advanced through the LOI stage close, moving toward the 2-4 point long-term sales contribution target.
- Miami-Dade ships 5%-10% of project volume late FY2026 and reaches full run rate in 2027, and Connecticut Water starts up.
- Data center mix keeps building from a mid-single-digit share of sales, helped by narrowing the Northern Virginia and Texas competitive gap.
- Gross margin improves slightly as guided while SG&A stays flat, expanding EBITDA margin from both lines at once.
- Private label moves from about 5% of sales toward the stated path of at least 10%, and treatment plant keeps growing double digits.
- Residential stays weak and light commercial and retail do not recover; the guide assumes residential gets no better or worse.
- Smart utility slips again — a third soft quarter with another push of the ramp beyond 2027.
- Fire protection growth reverts as steel pricing normalizes, with no volume-only growth rate disclosed underneath.
- The capital stack resolves poorly: notes terms or acquisition spending push leverage above the 2.3x level management calls within its target range, or buybacks slow materially.
- PVC price increases keep failing to stick and pricing turns from a modest tailwind into a drag.
Looking Ahead
The next twelve months turn on conversion rather than new demand. Management expects a good finish to the year, with back-half EBITDA growth mostly in the fourth quarter, continued treatment plant growth, a good finish for fire protection, and a record number of greenfield openings. Miami-Dade volume is expected toward the end of FY2026 with a full run rate in 2027, and the M&A opportunities advanced through the LOI stage are expected to close, which management says should set up "really good growth in 2027."
- 2H FY2026Fire protection finish — Management expects a good finish to the year for fire protection.
- 2H FY2026Treatment plant growth — Continued growth expected in treatment plants in the back half.
- Late FY2026Miami-Dade volume begins — Some 5%-10% of project volume may ship late in the fiscal year.
- FY2026Record greenfield openings — 7 opened year to date; target framed at 8-10 locations.
- FY2026-2027M&A closings — Several opportunities advanced through the LOI stage.
- 2027Miami-Dade full run rate — About 100,000 meters per year over a roughly 5-year project.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $7.4B | $7.6B | $7.7B | +2.8% |
| Gross Margin | 26.6% | 26.9% | 27.0% | +32bps |
| EBITDA | $913M | $912M | $928M | -0.1% |
| EBITDA Margin | 12.3% | 11.9% | 12.1% | 34bps |
| Net Income | $411M | $441M | $459M | +7.3% |
| Free Cash Flow | $586M | $604M | $628M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)27.0%
- EBITDA Margin (TTM)12.1%
- Net Margin (TTM)6.0%
- ROIC13.1%
- FCF Conversion67.7%
- SBC / Revenue0.2%
The Company
Core & Main is a specialty distributor of water, wastewater, storm drainage and fire protection products and related services. It sells to municipalities, private water companies and professional contractors across municipal, non-residential and residential end markets. The 10-K describes it as "a leading specialty distributor dedicated to advancing reliable infrastructure with local service, nationwide," and says it is one of only two national distributors in markets it estimates at approximately $44B in annual sales. Its role in the AI build-out is indirect: data center construction needs water, wastewater and storm drainage infrastructure during site development and fire protection systems during vertical construction, and Core & Main supplies both.
The company operates as a single reportable segment. It buys from manufacturers, stocks product in local branches and sells it with project management, staging, packaging and installation support. Management calls this "the strength of our asset-light business model" and says gross margin is local and based on local project wins. It owns its headquarters in St. Louis, Missouri, and operates 8 distribution facilities, on top of a branch network it is extending with greenfield openings — 7 so far in FY2026, split 3 in the western U.S., 2 in the Southeast and 2 in Canada.
Business Segments
Competitive Landscape
Core & Main describes the market as large and highly fragmented, with national competition from only one other distributor and regional and local distributors filling out the rest of the field. It says it is "unique in our dedicated focus on water and fire protection infrastructure." The 10-K does not name the national competitor. Management's own argument for defensibility is local: gross margin "is very local, and it's based on local project wins." Against that, management acknowledged it had been behind its larger national competitor in the Northern Virginia and Texas data-center markets.
- Ferguson plc (FERG)Mapped in the wiring file as the one national competitor — an inference, since the 10-K leaves that competitor unnamed. Management acknowledged Core & Main had been in a less strong position than its larger national competitor in the Northern Virginia and Texas data-center markets.
- Regional and local distributorsNamed in the wiring file as the fragmented remainder of the field below the national tier; not discussed individually.
Supply Chain
Core & Main sits one layer below the construction site. It buys pipe, valves, fittings, hydrants, meters, drainage structures and fire-protection equipment from manufacturers, stocks them in local branches and sells them with project support.
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