S&P/ASX 200 Index (ASX: XJO) share Reece Ltd (ASX: REH) has been under a lot of strain in 2025.
Australia's leading plumbing and bathroom supplier has seen its share price tumble from $25.92 per share at the end of November last year to $12.12 at the time of writing.
This equates to a 52% drop in the last 12 months. By comparison, the All Ordinaries Index (ASX: XAO) has climbed by 1.7% in the same period.
Expanding US network
Founded in Australia and now also operating across New Zealand and the US, Reece serves both trade and retail customers. The network of the popular ASX 200 share continues to expand. In the last quarter, it added 18 branches in the US and 14 in Australia and New Zealand.
Reece's scale gives it a competitive advantage, and over the years, it has built strong margins due to high-frequency trade customers and a broad product range.
Weak housing conditions
However, cracks are appearing. The housing markets are weak in both the US, and Australia and New Zealand, and margins are under pressure from elevated labour costs and inflation.
Reece also faces increasing competition, especially on its home turf with players like Tradelink and JB Hi-Fi Ltd (ASX: JBH), which has entered the market of home fittings.
Better-than-expected sales
The ASX 200 share was one of the big winners on Monday, gaining 12.6%. The share price lifted on Friday's quarterly update, which was better than expected. After the Tuesday lunch hour, the Reece share price recorded a 2% loss, settling at $12.12.
Reece reported 8% revenue growth to $2.41 billion for 1Q FY26, while EBITDA fell 8% to $222 million. Management warned that soft demand could persist, making short-term earnings recovery uncertain.
Peter Wilson, Chair and CEO, said:
Costs remain elevated driven by network growth, ongoing investment in core capabilities and the impact of labour cost inflation in competitive markets, especially the US. We are still expecting a period of soft activity in both regions.
Long and bumpy recovery
Analysts are broadly cautious and warn that recovery could be long and bumpy.
Morgans rates the ASX 200 share as a hold. The broker applauds the stronger sales in 1Q FY26 but sees ongoing margin pressures from higher costs and tough market conditions in ANZ and the US.
As a result, it has only upgraded Reece shares to a hold rating with a slightly increased price target of $11.25, up from $11.10.
Morgans noted in its recent research:
With a 12-month forecast TSR of 5%, we upgrade our rating to HOLD (from TRIM). While we continue to view REH as a fundamentally strong business with a good culture and a long track record of growth, the operating environment remains challenging, particularly in the US where competitive pressures persist. Trading on 24.2x FY26F PE with a 1.6% yield, we see the stock as fully valued and prefer to wait for signs of market improvement before reassessing our view.
