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Pentair (PNR) Board of Directors Clears Separation of nVent

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Pentair plc’s PNR board of directors has approved the separation of its businesses. This approval will create two industry leading pure play companies in Water and Electrical — Pentair plc and nVent Electric plc ("nVent"), respectively.  Both the companies are well-positioned for long-term growth and value creation and also possess the scale and strength to flourish as separate enities. nVent ordinary shares are expected to begin trading on the NYSE on May 1, 2018 under the symbol "NVT".

 

Separate Identities, Immense Growth Prospects

 

Pentair currently operates in two segments — Water Quality Systems and Electrical segment. In May 2017, the company had announced the separation of its Water and Electrical businesses into two standalone companies. Water Quality Systems designs, manufactures, markets and services innovative water system products, and solutions to meet filtration and fluid management challenges in food and beverage, water, swimming pools and aquaculture applications. It generated 57% of fourth-quarter 2017 revenues.

 

The Electrical segment contributed the remaining 43%. It designs, manufactures, markets and services products that guard and protect some of the world’s most sensitive electronics, and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications.

 

Pentair will continue to operate as a leading global water company focused on smart, sustainable solutions. Meanwhile, nVent will be a high-performance electrical company focused on improving utilization, lowering costs and maximizing customer uptime.  With well-recognized brands, attractive margin profiles, strong free cash flow generation prospects and opportunities, both the companies are poised for long-term, sustainable growth.

 

Details of the Separation

 

On separation, ordinary shares of nVent will be issued directly to holders of Pentair ordinary shares on a pro rata basis. The distribution will occur prior to the opening of business on Apr 30, 2018. Each Pentair shareholder will receive one ordinary share of nVent for every ordinary share of Pentair held as of the close of business on Apr 17, 2018, the record date for the distribution.

 

Starting Apr 16, 2018 and continuing through Apr 30, 2018, it is expected that there will be two markets in Pentair ordinary shares — Pentair shares that trade in the "regular way" market will trade with an entitlement to nVent ordinary shares to be distributed pursuant to the distribution and shares that trade in the "ex-distribution" market will trade without an entitlement to nVent ordinary shares.

 

The nVent Form 10 has been filed with the U.S. Securities and Exchange Commission (“SEC”) containing information regarding nVent and its business, including details of the separation and distribution. It also identifies certain risks of owning nVent ordinary shares. The separation and distribution of nVent ordinary shares is subject to the satisfaction of a number of customary conditions, which include the declaration that the Form 10 is effective by the SEC.  

 

Able Leadership to Steer Toward Growth

 

In October 2017, Pentair unveiled the name of the future Electrical company as nVent Electric plc and announced additional key leadership. Beth A. Wozniak, will assume the position of CEO of nVent upon completion of the separation. Also at the helm will be Stacy McMahan as Chief Financial Officer and Randall J. Hogan will serve as Chairman of nVent and retire as Pentair's Chairman and CEO upon the separation.

 

Outlook for 2018

 

During its fourth-quarter 2017 conference call, Pentair had issued 2018 adjusted EPS guidance for Water of $2.20-$2.30 per share, on core sales growth of 2-4%. It expects corporate expense for to be around $55 million, while interest expense is estimated to be around $20 million. For nVent, it initiated 2018 adjusted EPS guidance of $1.70-$1.80 per share. Pentair also expects corporate expense of $45 million and interest expense of $30 million.

 

 

Pentair underperformed its industry’s performance with respect to share price, over the past year. The stock gained 11%, while the industry recorded growth of 24% due to material and other cost inflation pressures.

 

Pentair currently carries a Zacks Rank #2 (Buy). 

 

Other top-ranked stocks in the same sector include Mobile Mini, Inc. MINI, Capstone Turbine Corporation CPST and Xylem Inc. XYL. While Mobile Mini sports a Zacks Rank #1 (Strong Buy), Capstone Turbine and Xylem carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Mobile Mini has a long-term earnings growth rate of 14%. The company’s shares have rallied 51% during the past year.

 

Capstone Turbine has an expected long-term earnings growth rate of 25%. Its shares have appreciated 54% in a year’s time.

 

Xylem has an expected long-term earnings growth rate of 18%. The company’s shares have gained 52% over the past year.

 

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