Pentair plc PNR has been benefiting from strong demand in its pool business for a while. Activity in industrial and commercial businesses continues to pick up, which will also support its top-line performance. Focus on investing in digital transformation, innovation and brand building, and making acquisitions in the areas of pool, and residential and commercial water treatment remain key catalysts. Its ongoing transformation program to accelerate growth and drive margin expansion is expected to yield results as well.
Shares of Pentair have fallen 5.8% in the past three months, faring better than the industry’s decline of 6.2%.
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Pentair currently has a Zacks Rank #3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s look into the factors that make this stock worth holding on to.
Strong Q2 Results: Pentair reported first-quarter 2022 adjusted earnings per share of $1.02, which beat the Zacks Consensus Estimate of $1.00 and management’s guided range of 92 cents to $1.01. The bottom line improved 21% year over year, driven by strong demand.
Upbeat Outlook for 2022: Pentair expects earnings per share in 2022 between $3.70 and $3.75. The range indicates growth of 9-10% from the year-ago reported figure. PNR’s implementation of productivity improvement efforts and price increases to counter the impact of cost inflation is likely to drive margins.
Positive Earnings Surprise History: The bottom line outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 3.8%.
Healthy Prospects: The Zacks Consensus Estimate for fiscal 2022 earnings per share is currently pegged at $3.71, suggesting growth of 9% from the prior-year reported number. For fiscal 2023, the consensus mark for earnings stands at $3.75, indicating an improvement of 1% from the year-earlier tally. PNR has an estimated long-term earnings growth rate of 9.6%.
Key Drivers in Place
Pentair gained from strong demand for swimming pools witnessed during the pandemic as consumers stayed home and invested in their backyards. The momentum continues this year as well, with consumers continuing to enhance their at-home quality of life by investing in pools. The pool business is also benefiting from the shift to more autonomous and energy-efficient pools. Pentair is witnessing a healthy recovery in commercial water solutions and industrial solutions. Apart from pool construction, demand for pool maintenance remains strong.
In second-quarter 2021, Pentair launched a Transformation program to accelerate growth and drive margin expansion. It is expected to drive operational efficiency, streamline processes and reduce complexity while meeting financial objectives. PNR will also be utilizing automation to increase productivity. It is projecting at least 300 basis points of margin expansion by 2025 through the program.
Pentair continuously invests in digital transformation, innovation, and technology and acquisitions in the high-growth areas of pool, and residential and commercial water treatment, which is commendable. Over the past three years, PNR has strengthened its portfolio with the acquisitions of Aquion, Inc., Pelican Water Systems, Rocean, assets of Ken’s Beverage, Inc and Pleatco.
In July 2022, Pentair completed the acquisition of Manitowoc Ice, a leading provider of commercial ice makers. The strategic acquisition enables PNR to enhance and deliver total water management offerings to an expanded network of channel partners and customers. The buyout will expand PNR’s commercial water solutions platform and drive growth in the foodservice industry. The acquisition is likely to be accretive to current-year earnings.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are RBC Bearings Incorporated ROLL, Valmont Industries, Inc. VMI and Greif, Inc. GEF. While ROLL sports a Zacks Rank of 1, VMI and GEF carry a Zacks Rank of 2.
RBC Bearings delivered a trailing four-quarter earnings surprise of 9.4%, on average. Its earnings estimates have increased 31.1% for fiscal 2023 (ending March 2023) in the past 60 days. ROLL’s shares have gained 32% in the past three months.
Valmont Industries’ earnings surprise in the last four quarters was 13.7%, on average. In the past 60 days, earnings estimates have increased 4.3% for 2022. The VMI stock has rallied 21% in the past three months.
Greif delivered a trailing four-quarter earnings surprise of 22.4%, on average. Earnings estimates have increased 4.6% for fiscal 2022 (ending October 2022) in the past 60 days. GEF shares have risen 9% in the past three months.
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