Reece Ltd (ASX: REH) shares have taken a significant hit these past six months, losing more than 45% of their value during that time to now fetch $15.75 apiece.
Shares in the plumbing and waterworks supplies company were at $29 apiece in March last year and have dropped more than 28% in the past month alone, in tandem with the broader market sell-off.
What's going on with Reece shares? Is now the time to pounce? Let's see what the experts think.
Why have Reece shares dropped?
It 's been a series of unfortunate events for Reece shares over the last half year. Firstly, Reece's first-half results for FY25 weren't encouraging.
The company reported a 3% drop in revenue to $4.4 billion, with a 10% decline in operating profit to $475 million. Even still, net profit fell 19%.
So a 3% drop in revenues led to a nearly 20% drop in profits.
Reece said a softer housing construction market in both Australia and the US caused the slump, which is likely to continue in the short term.
The performance led to a reduction in earnings forecasts shortly after, with Goldman Sachs quickly reiterating its sell thesis on Reece shares.
Goldman reduced its price target on the stock to $19.50 apiece, which represents a small bit of upside at the moment. However, it is still less than the average upside of all the industrial shares that it covers.
With 6-8% EBIT reductions across the forecast period (7-10% cuts to NPAT) and higher than expected period end ND, our 12m TP declines 14% to A$19.50. This implies 2% upside, which compares with the median upside of ~11% across our industrials coverage, thereby supporting our Sell thesis on a coverage-relative basis.
While the REH premium relative to the market and peers has contracted significantly over the last 3-6mths, it remains at a premium for 4 of the 6 assessed comparables (absolute EV/EBIT basis) and ~55% above the ASX 200.
Still, Reece is expanding its operations. During the first half of FY25, it added 14 new branches in Australia and 18 new locations in the US.
As my colleague Tristan recently reported, Reece has 675 branches in Australia, whereas in the US, it has 261 – no small number.
Time will tell whether these branch numbers boost or drag on Reece shares moving forward.
What's ahead for Reece shares?
The immediate outlook remains challenging. According to the company itself, housing activity is "expected to remain soft" in 2025, with "no material change to volume settings anticipated in near term".
It notes that housing construction is down over the year, with soft demand in both the US and Australian markets. But management has indicated the current environment is not new to Reece, and the company has faced similar challenges in the past.
CEO Peter Wilson commented that the company would continue investing in its business, focusing on expanding its branch network, refurbishing stores, and enhancing core capabilities.
Foolish takeaway
Despite the sell-off, Reece shares still trade at more than 24 times earnings, which is comparable to levels seen in 2019 and 2020.
Zooming out, the stock is down more than 43% in the past year and nearly 30% this year to date.
