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Here's Why You Should Steer Clear of Pentair (PNR) Right Now

Zacks Equity Research

Pentair plc PNR continues to be impacted by inflation in material and other costs which includes the impact of tariffs. The stock has also put up a dismal show of late. Over the past year, the stock has lost 18.9% compared with the industry’s decline of 1.8%.

Let’s delve into the factors weighing on this Zacks Rank #5 (Strong Sell) and why it may be prudent to avoid it at the moment.

Factors at Play

Pentair reported first-quarter 2019 adjusted earnings per share of 43 cents, down 12% from the year-ago quarter. Wet and cold weather delayed pool construction activity in several of Pentair’s key markets during the first quarter of 2019. The company also witnessed sluggish growth in several of its end markets, primarily in the Filtration Solutions’ end markets in Europe. The inclement weather also impacted the higher margin specialty agriculture spray business within the Flow Technologies segment as several parts of the country were flooded which in turn delayed the planting season. As a result of slower sell-through during the quarter, inventory levels have not gone down as anticipated. Results in the upcoming quarters are likely to be impacted if the inventory levels are not reduced or end market growth does not resume.

Owing to weather and impact of higher inventory, Pentair now guides adjusted earnings per share of $2.30-$2.35, down from the prior view of $2.50-$2.60. Sales in 2019 are likely to be up 1-2% on a reported basis, down from the previously-guided range of 5-6%. On core basis, sales growth will be flat to up 1%, down from the prior guidance of 4-5%. Unfavorable foreign currency impact will be (2)% for the year while acquisitions and divestitures will contribute 3%.

The Zacks Consensus Estimate for earnings per share for 2019 of $2.31, suggesting decline of 1.70% from the year-ago quarter. The estimate for revenues is at $3.01 billion for 2019, indicating a decline of 14% year-ago reported figure.

The Zacks Consensus Estimate for earnings for fiscal 2019 has moved south 10% over the past 90 days.

Pentair continues to witness inflation in material and other costs which includes the impact of tariffs. The company expects the current economic environment to result in continued price volatility for many of its raw materials. This is likely to dent Pentair’s margins in the near term. Though the company continues to implement price hikes to counter the impact of higher input costs, it might not always be feasible, considering the competitive environment.

The company has identified attractive opportunities in specific product and geographic markets, both within and outside the United States. The company is reinforcing businesses to effectively address these opportunities through research & development, and additional sales and marketing resources. Unless it is successful in its endeavors, the company’s core sales growth is likely to be constrained in the near term or may decline.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and Harsco Corporation HSC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 83.5% for the ongoing year. The company’s shares have soared 49% in the past year.

Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 59% in a year’s time.

Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have gained 2% over the past year.

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