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Estimates have been rising for Pentair, Inc. (PNR - Analyst Report) after management raised full year guidance following strong first quarter results.

Pentair reported strong sales growth and expanding margins in Q1, which led to the company's 4th consecutive positive earnings surprise.

The company has also been consistently raising its dividend over the last several years. It currently yields 2.2%.

Company Description

Pentair, Inc. is a diversified industrial manufacturing company. It operates in two segments: Water and Technical Products.

The Water segment offers products and systems used in the movement, storage, treatment and enjoyment of water. The Technical Products segment manufactures custom enclosures that house and protect sensitive electronics and electrical components.

The company is headquartered in Golden Valley, Minnesota and has a market cap of $3.7 billion.

First Quarter Results

Pentair reported a 12% increase in first quarter sales to $790 million, well ahead of the Zacks Consensus Estimate of $758 million. Demand continues to be strong in the company's industrial end markets.

The Technical Products Group was the hottest, with sales up 20% over the same quarter in 2010. The Water Group, which accounted for 65% of total sales, rose 8%.

Sales continued to surge overseas, particularly in China, which jumped 26%.

Pentair experienced solid margin expansion in the quarter too. Gross profit increased from 30.2% of sales to 31.5% as rising raw materials costs were more than offset by higher sales volume and prices. Meanwhile, operating income rose 38% year-over-year as the operating margin expanded 210 basis points to 11.1%.

Earnings per share came in at 52 cents, beating the Zacks Consensus Estimate of 44 cents. It was a 49% increase over the same quarter in 2010.

Guidance Raised

Management raised its guidance for 2011 following the strong Q1 results. The company now expects to earn between $2.30 and $2.42 per share, up from previous guidance of $2.20 to $2.35.

Analysts raised their estimates off the strong quarter as well. The 2011 Zacks Consensus Estimate is $2.44, corresponding to 22% growth over 2010 EPS. The 2012 consensus estimate is currently $2.92, representing 20% EPS growth.

It is a Zacks #1 Rank (Strong Buy) stock.

Dividend

Pentair has been steadily raising its dividend over the last several years:

PNR: Pentair, Inc.

It currently yields a solid 2.2%. The company's payout ratio is 37%, leaving plenty of room for more dividend hikes in the future.

Valuation

The valuation picture looks very reasonable for PNR. Shares trade at 15.4x forward earnings, a discount to the industry average of 20.0x. It sports a PEG ratio of 1.2 based on a 5-year projected growth rate of 12.4%.

Pentair's price to book ratio is just 1.6, well below the peer group average of 2.0x.

Conclusion

Pentair, Inc. continues to see strong demand for its products both in the U.S. and abroad. This is driving margins and EPS significantly higher. Unless the U.S. dips back into another recession, expect more solid earnings growth from PNR, and more dividend hikes too.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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