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Pentair (PNR) Stock Plunges 40% YTD: What's Pulling It Down?

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Pentair (PNR) Stock Plunges 40% YTD: What's Pulling It Down?

Inflation in material costs due to the impact of tariffs and a stronger dollar remain headwinds for Pentair (PNR).

Shares of Pentair plc PNR have plunged 40% so far this year compared with industry’s decline of 8%.



Let’s take a look into the factors behind the dismal price performance.


Pentair continues to witness inflation in material and other costs. In the third quarter of 2018, segment income is anticipated to be flat while Return on Sales (“ROS”) is expected to decline roughly 50 basis points mainly owing to inflation, including the impact of tariffs. The company implemented price increases in the third quarter, the benefit of which will not be realized until the fourth quarter. The company expects to deliver earnings of 52 cents in the third quarter. 


The estimates for the company for the third quarter of 2018 have consequently undergone negative revisions in the past 90 days, reflecting the negative outlook of analysts. For the third quarter, the estimate has gone down 22% to 52 cents per share over the past 90 days. Estimates have moved south by 13% and 6% to $2.31 and $2.54 for fiscal 2018 and 2019, respectively.


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


The company now projects $20 million of incremental growth investments, down from its initial target of $25 million. This is due to the timing of some of the investments for this year was slower in the first half.


Further sales outside the United States accounted for 40% of net sales in fiscal 2017. Fluctuations in foreign currency exchange rates, most notably the strengthening of the U.S. dollar against the euro, could have an adverse material effect on the company’s revenues.


Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell).


Stocks to Consider


Better-ranked stocks in the same industry include Atkore International Group Inc. ATKR, Donaldson Company, Inc. DCI and Flowserve Corporation FLS. All three stocks sport a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.


Atkore has a long-term earnings growth rate of 10%. The stock has gained around 18% year-to-date.


Donaldson has a long-term earnings growth rate of 11.5%. The company’s shares have rallied around 17% so far this year.


Flowserve has a long-term earnings growth rate of 17.3%. Its shares have rallied 27% year-to-date.


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