Factors That Make Pentair (PNR) Stock a Lucrative Bet Now
Pentair PNR has been benefiting from pricing actions, cost-cutting initiatives and progress on its Transformation initiatives. The ongoing momentum in the Industrial and Flow Technologies, and Water Solutions segments has helped offset the impact of low volumes in the pool business on its results.
Focus on product introductions, acquisitions and investments, which are in sync with its strategy to expand in the areas of pool, and residential and commercial water treatment, will continue to aid growth.
Top Zacks Rank & Upbeat Price Performance
PNR currently carries a Zacks Rank #2 (Buy).
Shares of the company have gained 54.7% in a year compared with the industry’s 10.2% growth. The Zacks Industrial Products sector has gained 17% and the S&P 500 composite has risen 13.8% in the same time frame.
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Solid Q2 Earnings & Upbeat View for 2023
Pentair has reported adjusted earnings per share of $1.03 in the second quarter of 2023, which was higher than the company’s guidance of earnings of 94-96 cents per share. Earnings improved 1% from $1.02 per share reported in the year-ago quarter.
Results were aided by the company’s transformation initiatives, improved performances in the Industrial and Flow Technologies and Water Solutions segments. This helped negate the weak performance of the Pool segment due to lower demand in new pools and the ongoing channel inventory correction.
The company expects the channel inventory correction in Pool to be completed by the end of the third quarter and gains from the transformation initiatives are expected to accelerate. These factors, along with pricing actions and gains from the Manitowoc Ice acquisition, will help offset the impact of higher costs and low pool volumes on the company’s results.
Pentair now expects adjusted earnings per share to be in the range of $3.65 to $3.75 in 2023, higher than its previous guidance of earnings per share of $3.60-$3.70. The company had reported adjusted earnings per share of $3.68 in 2022.
Upward Revision in Estimates
The Zacks Consensus Estimate for PNR’s earnings for 2023 has moved up 1% over the past 30 days and is currently pegged at $3.74 per share. The consensus mark for 2024 earnings has also seen a northward revision of 2% to $4.23 per share.
Demand Prospects Hold Promise
Even though the pool business is currently bearing the brunt of weak demand and ongoing inventory correction, it is expected to eventually pick up. The company estimates that the pool industry in North America is catering to a large installed base of approximately 5.4 million pools, with the average age of these pools being 20-25 years. Around 60% of the industrial demand is for repairing, 20% for major remodeling and 20% for new pools. Pentair is well-poised to gain from these demand trends in the long term. Also, given that half of the installed pools lack any form of automation, the growing preference for more autonomous and energy-efficient pools will benefit the company as well.
Strategic Initiatives to Aid Growth
Pentair is focused on expanding digital transformation, innovation, technology and brand building. The company has a strong product pipeline. It is also expanding particularly in the areas of pool and residential and commercial water treatment through acquisitions. In July 2022, Pentair completed the acquisition of Manitowoc Ice, a leading provider of commercial ice makers. The strategic acquisition enables the company to enhance and deliver total water management offerings to an expanded network of channel partners and customers. It will expand Pentair’s commercial water solutions platform and drive growth in the food service industry.
Pentair has embarked on a Transformation program to accelerate growth and drive margin expansion. The program is structured in multiple phases and is expected to drive operational efficiency, streamline processes, reduce complexity while meeting financial objectives. The company is targeting to make its return on sales to be around 23% by 2025, through the program from the 18.6% return on sales in 2022. It will also be using automation to increase productivity.
Solid Balance Sheet Bodes Well
Over the past five years, the company has generated a cumulative free cash flow of more than $2 billion. The company has a long-term target to consistently generate free cash flow greater than the 100% conversion of its net income. Its total debt to total capital ratio stood at 0.42 at the end of second-quarter 2023. It has no significant long-term debt maturing in the next five years. Pentair's times interest earned was 6.1.
Other Stocks to Consider
Some other top-ranked stocks from the Industrial Products sector are Terex Corporation TEX, Astec Industries, Inc. ASTE and A. O. Smith Corporation AOS. TEX and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Terex’s 2023 earnings per share is pegged at $1.61. Estimates were unchanged in the last 60 days. It has a trailing four-quarter average earnings surprise of 27.1%. TEX has gained 67% in a year’s time.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares have gained 37% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS has gained 22.6% in the last year.
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