I remember when Evian launched their ad campaigns here in the
US in 80s, selling water for what then seemed like astronomical
prices (who knew they were on to something).
In the United States, a liter of bottled water can cost up to
$3 per bottle, while a similar volume of tap water costs less
than one cent. According to a NRDC study over 12 years ago,
U.S. consumers paid between 240 and 10,000 times more per unit
volume for bottled water than for tap water.
(There are 119.24 liters in a barrel, which means that a
barrel of premium water would cost about $360 or 4.5 times more
To make things even more complicated, bottled water and tap
water are regulated by different federal agencies: the Food and
Drug Administration (FDA) regulates bottled water and the
Environmental Protection Agency (EPA) oversees the quality of tap
Several studies have found that the enforcement and monitoring
of water quality is irregular and inconsistent for both tap water
and bottled water. But contrary to popular belief, Tap water
contamination incidents must be reported promptly to the public,
while the same is not true for bottled water.
The bottom line is that even though we pay a premium for our
drinking water, potable water flowing constantly through the
pipes in our homes and workplace is crucial and highly
regulated. In certain cities it doesn't taste so bad
A tap water renaissance would be wonderful for today's Bull of
the Day Mueller & Co.
, but more realistic for its growth are the necessary
improvements to American water infrastructure. It's a trend
that's not only needed, but demanded by the people.
Water is essential to our daily lives and it's a quiet, but
very powerful commodity that we tend to take for granted.
Water, water everywhere…
…but getting it to where it's needed can be a problem.
The truth is that Mueller & Co. MWA is not the company
that is filtering your water for drinking or capitalizing on a
shift from bottles back to the tap. Their products and
services actually help get the water to our homes, hydrants and
business in addition to troubleshooting problems that lie beneath
Mueller is one of the largest manufacturers of fire hydrants,
butterfly valves and Iron Gate valves in the U.S. and Canada and
offers the broadest product line of valves for residential water
and gas systems.
Other product offerings include pipe repair products, water
meters, tapping machines and tools, advanced metering
infrastructure (AMI)/automated meter reading (AMR) and leak
detection and pipe condition assessment technology and
The sales of Mueller's products are heavily influenced by
local water department specifications, so they know exactly what
they need and fill a specific demand.
As cities age and grow, the need for replacement and/or
improvement of this vital infrastructure is necessary. Many
of America's cities are deficient in this area and it's something
they cannot avoid. In America's biggest water systems
alone, 30% of pipes are 40 to 80 years old.
Aside from improvements, water leaks alone account for
millions in losses for States and municipalities.
Ecologics, one of Mueller's divisions allows water companies
to accurately detect leaks and assesses the condition of water
pipes-without breaking ground- through the use of their acoustic
Earnings Flow & Insider Action
Back in late April, Mueller announced record earnings of 5 cents
per share, beating the Zacks Consensus estimate for 2 cents or
150%. The company more than doubled adjusted operating
income to $24.7 million from $11.5 million versus the same
quarter last year and saw a $31.6 million increase in net sales
to $283.1 million from $251.5 million.
Margins improved and Mueller also redeemed $22.5 million
principal amount of 8.75% Senior Unsecured Notes, reducing net
debt leverage to 4.0x.
It was their best quarter since 2008 and shares responded
appropriately, rocketing almost 35% from where they were trading
before the earnings release.
Even with the rise, I noticed that several insiders were still
buying shares around the $6.88 mark, or slightly above where they
are currently trading; usually a bullish sign.
Analysts have also gotten more bullish after the results and
have adjusted their target and estimates higher.
Mueller continues to see shipment volumes of their valves,
hydrants and brass products increasing. Moreover, net sales
of Mueller Co.'s newer technology products and services more than
doubled in the quarter on a year-over-year basis demonstrating
the footing these products and services continue to gain in the
Share valuations are certainly rich at 35 times forward
earnings, but if Mueller can deliver on their current trajectory,
that multiple could drop dramatically and make Mueller stock a
little more easy to swallow.
First off, it's important to realize that this is a volatile
stock. Yesterday's 8.75%, no news drop is proof of that.
Shares tend to oscillate roughly 4.5% per day if you are
looking to quantify the moves.
The good news is that the stock remains in a bullish trend and
above the 50 and 200 day moving averages of $6.57 and $5.17
Share should see a decent bounce as they are well outside of
the lower Bollinger band in the over-sold territory and should
also hold the 50 day moving average barring any catastrophic
broad market news.
In the short term it wouldn't be unrealistic to see the stock
back in the $7.75 range and higher.
While the fundamentals aren't perfect, MWA is a Zacks Rank #1
with stable technicals and a cheap absolute share price.
For more players in the "water space," you can also
checkoutAmerican Water Works Co
- Zacks Rank #3,Consolidated Water Co
- Zacks Rank #2 andAmerican Sts Water Co
- Zacks Rank #2.
Jared A Levy is one of the most highly sought after traders in
the world and a former member of three major stock exchanges.
That is why you will frequently see him appear on Fox Business,
CNBC and Bloomberg providing his timely insights to other
investors. He has written and published two tomes,
"Your Options Handbook"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
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AMER WATER WORK (AWK): Free Stock Analysis
AMER STATES WTR (AWR): Free Stock Analysis
CONSOLTD WATER (CWCO): Free Stock Analysis
MUELLER WATER (MWA): Free Stock Analysis
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