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Pentair (PNR) Down 7% Year to Date: Will it Bounce Back?

Zacks Equity Research

Pentair plc’s PNR pipeline of products, acquisitions and investments in sync with its growth initiatives in the areas of pool, and residential and commercial water treatment are commendable. However, shares of the company have lost 7.0% year to date compared with the industry’s decline of 15.7%. This downside can be primarily attributed to the weak results in 2019 so far due to the impact of adverse weather and input cost inflation.
 

Let’s delve deeper.

What Dragged the Stock Down?

Pentair’s earnings per share (EPS) declined 12% and 4% on a year-over-year basis in first and second-quarter 2019, respectively. Wet and cold weather delayed pool construction activity in several key markets during the first half. Further, as a result of slower sell-through during the first half of 2019, inventory levels were not reduced to the anticipated levels. Consequently, the financial results of Aquatic Systems segment (which accounts for around 34% the company’s revenues) is likely to be affected.

Additionally, Pentair continues to witness inflation in material and other costs, which includes the impact of tariffs. This is denting Pentair’s margins.

Factors Likely to Drive Growth

Pentair has undergone certain business restructuring initiatives aimed at reducing fixed cost structure and commenced business realignment. These actions will contribute to margin growth in 2019. Further, productivity improvement and price hikes implemented to combat higher input costs will continue to aid results.

In order to improve growth rate, Pentair plans to make some incremental investments in the Aquatic Systems business. The company continues to increase product introductions, inclusive of smart technologies. Less than 10% of the 5 million installed in-ground pools currently have some form of automation system, representing ample opportunities for growth. Further, aftermarket and upgrade market continues to make up nearly 80-85% of all pool product equipment sold and used by pool owners, making it a lucrative market.

Pentair plans to expand particularly in the areas of pool and residential and commercial water treatment through acquisitions, and focus on China and Southeast Asia. In sync with this, Pentair acquired Aquion, which will help the company expand scope and customer offerings in the residential and commercial water treatment arena. Pentair has also acquired Pelican Water Systems, which provides residential whole home water treatment systems. Pelican Water Systems adds new and complementary products and services to Pentair’s portfolio enabling it to meet consumers’ residential water needs.

Zacks Rank and Stocks to Consider

Pentair currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Zebra Technologies Corporation ZBRA, Cintas Corporation CTAS and Tetra Tech, Inc. TTEK. While Zebra Technologies presently sports a Zacks Rank #1 (Strong Buy), Cintas and Tetra Tech carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zebra Technologies has a projected earnings growth rate of 16.71% for the current year. The stock has gained 25% in a year.

Cintas has an estimated earnings growth rate of 11.15% for 2019. The company’s shares have gained 52% in the past year.

Tetra Tech has an expected earnings growth rate of 15.97% for the ongoing year. The stock has appreciated 48% over the past year.

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