Morningstar | Pentair Delivers Another Solid Quarter; Maintaining FVE. See Updated Analyst Note from 29 Jan 2019
We maintain our $44 per share fair value estimate for narrow-moat Pentair after the company announced fourth-quarter revenue and earnings results that both slightly topped consensus estimates. We made some puts and takes in our valuation model, but our long-term outlook is largely the same, and we remain optimistic about the company’s prospects.Pentair’s core sales grew 6% in the fourth quarter, fueled by strong 13% year-over-year growth in the aquatic systems segment. Flow technologies revenue increased 4%, while filtration solutions sales stayed flat compared with the same period last year. Adjusted EPS increased 15% year over year for the fourth quarter and 21% for the full year.
Management delivered a relatively upbeat outlook for full-year 2019, expecting adjusted EPS of $2.50 to $2.60 per share, which would represent a 6%-11% annual increase. Since the newly released guidance for 2019 is in line with our prior expectations, we have not made any material changes in our forecast. We model 2019 EPS at $2.56.
We expect that the firm will continue to pursue strategic bolt-on and tuck-in acquisitions, such as the recently announced Aquion and Pelican Water deals, which will bolster Pentair’s residential and commercial water treatment portfolio. Management expects the two acquisitions to contribute approximately $110 million to the company’s revenue and generate accretive margins.
We currently view Pentair’s stock as fairly valued, with shares trading in 3-star territory. That said, we think the stock deserves a spot on investors’ watchlists given its narrow moat, solid revenue growth prospects in the aquatic systems and filtration solutions segments, and room for further margin expansion.
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