On Jan 10, 2014, we initiated our coverage on
) with a Neutral recommendation based on strength in the North
American residential and global food & beverage markets,
stabilization across Europe, cost synergy from last year's merger
with Tyco Flow and consistent share repurchases.
However, lower orders at the Valve & Controls segment, a
weak Australian economy and foreign exchange remain concerns for
this supplier of water and other fluids, thermal management, and
Pentair reported third-quarter 2013 adjusted earnings of 86 cents
per share, up 25% from the year-ago quarter. Pentair projects
fourth-quarter 2013 adjusted earnings per share in the range of
83-85 cents per share. The company expects synergies from
repositioning actions and functional standardization efforts to
the tune of $120 million for full-year 2013 and $42 million in
the fourth quarter.
Residential and commercial (approximately 24% of Pentair's
revenues) sales grew 11% year over year in the third quarter led
by the residential construction recovery in North America while
Europe is showing signs of stabilization. Even though commercial
construction continues to remain weak, management pointed out
improvement in Europe and North America. Management expects
residential and commercial sales to grow 7-9% year over year in
Furthermore, during the quarter, Pentair continued to witness
strength in the food & beverage markets, wherein sales within
the Water & Fluid Solutions segment increased 20%. This
vertical is expected to experience progress in the fourth quarter
In addition, the company continues to witness improvement in
the infrastructure break/fix business, which should help drive
growth. Representing approximately 18% of sales, Western Europe
appears to have stabilized.
FRANKLIN ELEC (FELE): Free Stock Analysis
PENTAIR LTD (PNR): Free Stock Analysis Report
PIONEER PWR SOL (PPSI): Get Free Report
ZEBRA TECH CL A (ZBRA): Free Stock Analysis
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As of Sep 28, 2013, Pentair had $325 million remaining for share
repurchases under its $1.2 billion authorization, which is
expected to be completed in 2014. In addition, the company
announced a $1 billion share repurchase program to be executed
through 2016 in sync with its long-term goal of maintaining a
balanced capital deployment policy by returning capital to
shareholders through dividends and buybacks, while maintaining
the scope for accretive acquisitions. Further share repurchases
will continue to boost earnings.
However, on the flipside, Valve & Control orders were down in
the third quarter due to delays and weakness in some verticals.
In the Energy-Mining vertical, orders were down 35%, Energy-Oil
& Gas orders dropped 12% while Industrial process orders were
dipped 7%. This will impact results in the fourth quarter.
Overall sales growth also remained challenged in the quarter
impacted by soft Australia and Canada sales. Delay in project
activity in these regions along with a foreign exchange headwind
from Australia had a significant impact on revenues. The volatile
Australian economy and foreign exchange pose threats for the
fourth quarter as well.
Other Stocks to Consider
Pentair retains a short-term Zacks Rank #3 (Hold). Some
better-ranked stocks in the same sector include
Zebra Technologies Corp.
Pioneer Power Solutions, Inc.
Franklin Electric Co., Inc.
). While Zebra Technologies and Pioneer Power Solutions sport a
Zacks Rank #1 (Strong Buy), Franklin Electric holds a Zacks Rank