Legrand Earnings: Raises Full-Year Guidance Despite End-Market Weakness; Shares Fairly Valued

Narrow-moat Legrand managed to raise prices by more than we had expected during the second quarter, which combined with slightly lower raw material costs, were the primary drivers behind its organic revenue growth of 2% and operating profit margin expansion of 170 basis points to 22.3% during the second quarter. The fact that price increases continue to stick, despite weakness in certain end markets, highlights the high value and low cost of its products and also Legrand's close relationships with distributors and installers. Similar to its peers ABB, Siemens, and Schneider Electric, who already raised sales and profit guidance this year, Legrand has lifted the midpoint of its organic revenue growth guidance to 4.5% from 1% while it also increased its full-year operating margin target by 0.5% to 20.5%. While we adjust our organic revenue growth estimate to 4.2% from 2.6% during fiscal 2023 due to stronger-than-expected pricing, we maintain our EUR 87 fair value estimate. Legrand’s large exposure to residential and commercial office buildings, which are more sensitive to higher interest rates, means its top-line outlook is significantly lower than peers. Shares are fairly valued.