Shares of Watts Water Technologies, Inc. WTS have gained 25.1% in the past three months as better operating results, accelerating data center demand and a higher 2026 outlook strengthened the fundamental backdrop.
The key question is whether those improvements can keep supporting the rally. With expectations elevated after the advance, uneven project timing, margin pressure or softer construction demand could make future results harder to beat.
Watts' Rally Tracks a Step-Up in Growth
Second-quarter sales rose 18.6% year over year to $763.2 million, while organic sales advanced 12.2%. Favorable pricing, higher volumes and data center growth drove the increase.
Adjusted earnings rose 18.4% to $3.66 per share and beat the Zacks Consensus Estimate by 9.6%. The combination of double-digit organic growth and an earnings beat gives the recent share-price move a firmer operating foundation.
WTS Posts Record Q2 Sales and Earnings
Watts delivered record sales, operating income and earnings per share in the second quarter. Pricing, volume leverage and productivity helped offset acquisition dilution, inflation and tariffs.
Adjusted operating income increased 15% to $160 million. That result shows the company was still able to grow operating profit despite cost pressure and a difficult comparison with a prior-year tariff-related price-cost benefit.
Watts Water Technologies, Inc. Price and EPS Surprise
Watts Water Technologies, Inc. price-eps-surprise | Watts Water Technologies, Inc. Quote
Watts' Data Center Exposure Expands Fast
Data center sales more than tripled year over year and represented 8% of first-half 2026 sales, up from 3% of total sales in 2025. Watts now expects data centers to account for a mid- to high-single-digit percentage of full-year sales.
Liquid cooling is expanding the potential content per megawatt, while new products such as CoolVault thermal storage tanks add to the opportunity. Watts is also broadening relationships with contractors, original equipment manufacturers and hyperscalers, although project-based demand can vary by quarter.
WTS Raises Its 2026 Growth Outlook
Management raised its 2026 reported sales growth outlook to 14%-17% from 8%-12%. Organic growth guidance increased to 8%-11% from 2%-6%, reflecting stronger first-half execution, price realization and data center demand.
Third-quarter organic growth is expected to slow to 5%-8%. That moderation, along with project timing variability, suggests investors should not assume the second quarter's growth pace will repeat each quarter.
Watts Faces Margin and Demand Friction
Gross margin contracted 160 basis points to 49% in the second quarter, while adjusted operating margin fell 60 basis points to 21%. Soft residential and non-data-center construction, product rationalization, tariffs and geopolitical uncertainty remain potential constraints.
Badger Meter, Inc. BMI, which focuses on flow measurement, water quality and control products, offers one relevant comparison within water technology. Mueller Water Products, Inc. MWA, a provider of products and solutions for water transmission, distribution and measurement, gives investors another reference point for competitive conditions across water infrastructure.
WTS Signals Caution Despite Strong Momentum
The 25.1% three-month gain has been backed by better results and a higher outlook, but the stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Watts also has a VGM Score of F, with a Value Score of F, Growth Score of D and Momentum Score of C. Since the Style Scores complement the Zacks Rank and A and B are the more favorable scores, WTS' current profile is not uniformly favorable despite its recent operating and share-price momentum.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
