We initiate on DXPE at Hold, $92 PT. DXP Enterprises is a leading distributor of MRO products and services with diversified exposure to energy and industrial infrastructure in US and Canada.
Here’s the investment paradox: we are modeling FY25E EBITDA of $212mn—55%+ above The street consensus—on a record IPS backlog, high-margin water/wastewater M&A, and better-than-expected Q1/25 run-rate. Management’s tariff pass-through ability affords DXPE critical pricing power in a volatile MRO landscape.
But this robust backdrop is offset by a complex macro picture: ongoing manufacturing contraction, elevated raw material costs, and sticky inflation argue for multiple restraint. Our $92 PT assumes 6.4× forward EBITDA; above DXPE’s historical median, but materially discounted to peers. We believe this is prudent caution in spite of the clearly accelerating fundamentals.
Key risks include industrial demand shocks and working capital swings, which could increase the volatility of earnings and capital returns.
Bottom line: though upside to EBITDA is real, our balanced R/R argument supports our Hold rating—investors need macro headwinds to stabilize and multiple rerating to become constructive.
Volatility in working capital muddies FCF visibility.
The margin profile is mixed when looking at DXP Enterprises’ recent bias toward higher-margin water/wastewater acquisitions—acquisitions which carry significant implications for EBITDA growth and durability. The completion of Riordan Materials Corporation and Florida Valve & Equipment Corp. (including Environmental MD) bolsters DXPE’s municipal and industrial water exposure both geographically and from a product capability perspective.