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Pentair Declares Share Buyback Program

Zacks Equity Research

The Board of Pentair Ltd. (PNR) has sanctioned a share repurchase program allowing the company to buyback shares worth up to $1 billion. Shares of Pentair gained around 1.5% following the news release and closed at $71.64 yesterday.

Pentair intends to repurchase shares in the open market using its cash flow from operations. The repurchase program expires on Dec. 31, 2016.

The buyback program, effective immediately, results from Pentair’s excellent operating and financial performance in third-quarter 2013. Pentair anticipates about $2 billion to remain in cash and balance sheet capacity for reinvestment in business or additional buybacks by 2015.

Pentair also expects that the buyback and annual dividends will help in returning more than 50% of its operating cash flows to shareholders per year.

Pentair, which belongs to the diversified machinery industry along with John Bean Technologies Corporation (JBT), reported adjusted earnings of 86 cents per share in the third quarter, up 25% from the year-ago quarter. Earnings were at the upper end of the company’s guidance range of 83 to 87 cents.

Pentair’s cash flow provided by operating activities increased to $630 million for the nine-month period ended Sep 28, 2013, compared with $247 million in the comparable period last year. Free cash flow in the reported quarter was $206 million.

In addition to share repurchase, Pentair announced a change in its parent company's place of incorporation from Switzerland to Ireland. The Board has approved the decision. Shareholders are expected to vote on the proposed change at the planned second-quarter 2014 shareholder’s meeting.

Pentair predicts that the change of location will be effective following the merger of the present publicly-traded Swiss company, Pentair, into a newly-formed Irish company named Pentair plc.  Pentair plc will then become the publicly-traded parent company of Pentair and its subsidiaries with its tax residency in the U.K. The company is also maintaining its 2015 earnings target of $5.00 per share.

However, Pentair, in its third quarter call, narrowed its adjusted earnings per share guidance to $3.19–$3.21 from $3.15–$3.25 for full-year 2013. The company also lowered sales outlook from $7.5 billion to $7.4 billion. Pentair expects to generate free cash flow in excess of 100% of net income in 2013.

Moreover, Pentair predicts fourth-quarter 2013 adjusted earnings per share in the range of 83 to 85 cents per share. The revenue expectation for the quarter is roughly $1.8 billion. The company expects synergies from repositioning actions and functional standardization efforts to the tune of $120 million for the full year of 2013 and $42 million for the fourth quarter.

Pentair delivers industry-leading products, services and solutions for fulfilling customers’ diverse needs related to water and other fluids, thermal management and equipment protection. Pentair employs more than 30,000 people worldwide.

Pentair currently has a short-term Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Zebra Technologies Corp. (ZBRA) and AO Smith Corp. (AOS). Both carry a Zacks Rank #1 (Strong Buy).

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