On Dec 11, we issued an updated research report on Pentair plc PNR. The company’s growth will be aided by introduction of products, acquisitions and investments in sync with its growth initiatives of advancing pool growth, and accelerating residential and commercial water treatment.
Poised for a Strong Q4
Pentair initiated fourth-quarter 2018 adjusted earnings per share guidance of 59 cents. If achieved, it would mark the fourth consecutive quarter of double-digit adjusted EPS growth. Sales are expected to be around $736 million, increasing 1-2% on a reported basis and up 4-5% on a core basis compared with fourth-quarter 2017. All the segments are projected to report growth with the Aquatic Systems’ core sales expected to be up 10-12%. Core sales are expected to increase 1-2% in Filtration Solutions and 2-3% in Flow Technologies. Segment income is anticipated to be up approximately 6%, while ROS is expected to expand roughly 30 basis points. The Zacks Consensus Estimate for the ongoing quarter is at 59 cents.
Upbeat Fiscal 2018 Guidance
Pentair revised 2018 adjusted earnings per share guidance to around $2.33 from the previous expectation of roughly $2.31 at its third-quarter 2018 conference call. Improved operating performance in the third quarter and the impact of share repurchases led to the hiked guidance. This marks the second consecutive quarter that the company has raised guidance. Healthy end markets and continued execution across its portfolio is driving results. Sales for the year are now projected at $2.96 billion, up from the previous guidance of $2.95 billion. Revenues are expected to be up 4% and 5% on a reported and core basis over 2017, respectively.
The Zacks Consensus Estimate for fiscal 2018 for earnings per share is at $2.33. Meanwhile, the estimates for revenues are pegged at $2.96 billion.
Poised for Growth Post Electrical Business Separation
Pentair has completed the separation of its Electrical business, which is now nVent Electric plc NVT. Pentair is now operating as a leading global water company focused on smart and sustainable solutions. 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.
The company has reduced debt levels with the cash received as part of the nVent spin-off. Pentair’s long-term debt has gone down to $799 million as of Sep 30, 2018 from $1.4 billion as of Dec 31, 2018. With strong free cash flow expected for the remainder of the year and low-debt levels, the company is well positioned to invest in the business along with strategically exploring tuck-in or bolt-on acquisition targets. These buyouts are in sync with its key growth initiatives of advancing pool growth, and accelerating residential and commercial water treatment.
Investment in Business & Products to Fuel Growth
Pentair plans to make incremental investments in the Aquatic Systems business in order to improve growth rate. The company intends to expand aftermarket product offering and expand presence in the rapidly growing automation space. Less than 10% of the 5 million installed in-ground pools currently have some form of automation system, consequently representing ample opportunities for growth.
Further, there are many other energy efficient products in areas like lighting, heating and cleaning that present significant runway for growth. The company’s investments include technology upgrades, digital marketing campaigns, incremental sales resources, dealer tools, and working on value propositions and alternative channel support.
Pentair also plans to accelerate residential and commercial filtration. The company is a leader in residential water treatment components. The company intends to enhance dealer loyalty in the business similar to its previous success in pool business. The majority of water treatment dealers are not affiliated by brand and consequently an opportunity exists to drive higher demand of its products through a loyal dealer network. The company also has plans to expand in China and Southeast Asia.
Pentair’s shares price has fallen 7.4% in the past three months compared with the industry’s decline of 11.4%.
Pentair currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same sector are Enersys ENS and CECO Environmental Corp. CECE, both the companies carry the same rank as Pentair. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Enersys has a long-term earnings growth rate of 10%. Its shares have rallied 17% in a year’s time.
CECO has a long-term earnings growth rate of 15%. The stock has surged 66% over the past year.
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