Trade idea of the day Ferguson to retest 5722p

What: Ferguson, formerly known as Wolsely is trading over 5% higher this morning reinforcing its status as a to pick in the FTSE 100. So, what caused the jump?

Ferguson has climbed this morning after its half year results have come with an increase to its dividend by 10% to 57.4 cents, plus an additional proposed $1 billion special dividend, worth around $4 per share, in the wake of the selling of its Nordic assets. These payouts come in addition to the continuation of it buyback programme of $500 million announced in October last year, which has now reached around $335 million. These are some impressive returns that Ferguson is offering making it a highly attractive buy.

The good news didn’t end there either. The results themselves were better than expected, with the US performing particularly well. The UK side of the business could be considered the weak link, however this accounts for just 5% of profits now, roughly a quarter less than what it accounted for 10 years ago. The US is now responsible for around 89% of trading profits and a buoyant US residential market helped boost the group’s underlying half year profits to $698 million, a whopping 15% increase.

The outlook for the US residential market remains strong, whilst industrial markets are also showing encouraging signs of recovery, which in addition to better than expected Q2 results have lead some investment banks to up their target for the stock.

How: Shares in Ferguson have climbed over 60% over the past two years alone. Yet even with today’s 5% increase to 5432p, the stock remains some 5% from its all-time high hit in January, following the US tax cuts. The price is encountering some resistance 5430p, however a meaningful move through this level could see the price retest January’s high of 5722. On the downside support can be seen at 5300p before 5150p. Analysts’ consensus is a majority buy rating with target prices pointing to a further 15% potential in the stock to 6200p.

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