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Is Now the Time to Buy Wolseley?

By Rupert Hargreaves - Apr 16, 2013 at 4:50PM

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Should you buy Wolseley today?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Wolseley (LSE: WOS) (NASDAQOTH: WOSCY) to determine whether you should consider buying the shares at 3,176 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

Wolseley

3,176p

127%

17.2

2.9

2%

N/A

2.9

The consensus analyst estimate for this year's earnings per share is 184 pence (6% growth) and dividend per share is 69 pence (14% growth).

Trading on a projected P/E of 17.5, Wolseley appears cheaper than its peers in the support services sector, which are currently trading on an average P/E of around 20.

Wolseley's P/E and growth rate give a PEG ratio of around 2.9, which implies the share is expensive for the near-term earnings growth the firm is expected to produce.

Offering a 2% yield, Wolseley's dividend income is about the same as the sector average. However, Wolseley did not pay a dividend to shareholders during 2009 and 2010, and therefore it is not possible for me to calculate a three-year dividend growth rate.

That said, Wolseley did restart its dividend payouts during 2011 and over the past two years the company's regular dividend has grown at a compounded 33%. Additionally, Wolseley paid a special dividend to shareholders of 122 pence a share during 2012.

Lastly, Wolseley's regular dividend is just under three times covered by earnings, giving plenty room for further payout growth.

Is now the time to buy?
Plumbing merchant Wolseley has been more exposed than most to the economic climate over the past few years and it appears the company is still feeling the pressure. In particular, within Wolseley's recent half-yearly report, the company reported that its profits in Europe had suffered a fall of 40%.

Having said that, Wolseley is benefiting from the housing recovery in the United States, where the company generates around 50% of its revenue and is the market leader for plumbing and heating products. Indeed, during the first half of the current financial year, Wolseley's U.S. revenue grew 8%.

Furthermore, thanks to Wolseley's strong performance within the U.S., the group actually managed to increase its trading profit for the first half of 2013 by almost 8% excluding discontinued operations.

So, based on Wolseley's solid performance in the U.S. and the company's current discount to sector peers, overall I believe now looks to be a good time to buy Wolseley at 3,176 pence.

More FTSE opportunities
As well as Wolseley, I am also positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock For 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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