On May 19, we issued an updated research report on Pentair plc PNR. The company’s near-term results will be affected by lower production amid the coronavirus outbreak and weak demand across its business. Material cost inflation is also a concern.
Weak Demand & Production Curtailment to Hurt Pentair
Pentair has suspended operations in many of its major facilities due to lower production amid the coronavirus outbreak. The company has withdrawn its guidance for the current quarter and the year on account of the uncertainty of the duration and extent of the pandemic. Pentair’s production was interrupted by the stay-at-home orders, as a result of which, it has been forced to reduce operations in several facilities. It expects significant demand softness across most of its businesses in 2020.
Moreover, the company’s Water Solutions business is likely to see slower growth in residential system due to lesser retail traffic, while the commercial systems business might be affected by muted demand due to temporary shutdowns across the hospitality and restaurant industries.
Pentair’s Industrial & Flow Technologies (IFT) segment sales are mostly tied to various industrial markets. Hence, lower industry sales are expected to be a headwind for the segment. This apart, the segment’s residential and irrigation flow business will be hurt by the current weakness in the agricultural sector.
Pentair continues to witness inflation in material and other costs, which includes the impact of tariffs. This is likely to dent its margins in the near term. Though the company continues to implement price hikes to counter the impact of higher input costs, it might not always be feasible, considering the competitive environment and weak demand.
Over the past year, Pentair’s shares have lost 3.8% compared with the industry’s growth of 10.7%.
Zacks Rank & Stocks to Consider
Pentair currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Ampco-Pittsburgh Corporation AP and Energous Corporation WATT. While Silgan sports a Zacks Rank #1 (Strong Buy), Ampco-Pittsburgh and Energous carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 6% in the past three months.
Ampco-Pittsburgh has an expected earnings growth rate of 2.70% for the current year. The stock has appreciated 4% in the past three months.
Energous has an estimated earnings growth rate of 17.3% for the ongoing year. The company’s shares have rallied 17% in the past three months.
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