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Should Watts Water (WTS) Be in Your Portfolio Right Now?
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We have issued an updated research report on Watts Water Technologies, Inc. (WTS - Free Report) on May 23, 2016. The company is set to benefit from the European transformation program, acquisitions and growth in operational efficiencies. However, macroeconomic weakness in Europe, unfavorable foreign currency exchange rates and oil price volatility will weigh on near-term results.
Watts Water’s transformation initiatives in the Americas and EMEA will drive its results. In March, the company began shipping from its new state-of-the-art distribution facility in Columbus, OH. This center of excellence will streamline the distribution process via new management warehouse and scanning technology.
Watts Water remains focused on its acquisition strategy. The company has completed 21 acquisitions in the last 10 years. AERCO, which was acquired in 2014, was successfully integrated into Watts Water in 2015 and the synergies were realized during the first year of ownership. AERCO posted record sales, and the business also generated strong profits and cash flows in 2015. Watts Water expects the trend to continue in 2016.
Further, the Apex acquisition generated about $3 million in sales during the first quarter of 2016. Sales outside China represented 46% of total Asia-Pacific sales in the first quarter versus 16% a year ago, driven by the addition of Apex plus growth in valve portfolio in countries like Australia, Indonesia and Japan. The company expects this trend to continue as it expands its business into more mature, co-driven countries.
In early April, the company announced that two distribution sites would be closed and phased out by the end of June. To date, this brings the number of announced site closures in the Americas to five, helping the company achieve its goal by reducing footprint by 30%. Additional site closures are planned and will be announced in due course over the next several quarters.
Recently, Watts Water hiked its quarterly dividend by 6% to 18 cents per share, reflecting its commitment to enhance shareholder value. This hike will increase its dividend yield from the current 1.23% to 1.28%. Its share repurchases activities will also drive growth.
However, the company maintained its full-year 2016 outlook and expects full-year organic sales growth in the low-single digits with sales by region falling in line. Per the company, oil price volatility and the adverse impact of currency translation could affect project funding and the expected timing of projects in the Middle East region.
Further, a stronger U.S. dollar, primarily against the euro and the Canadian dollar, will continue to be a headwind for Watts Water. Moreover, the top line remains challenged by foreign-exchange headwinds, continued softness in Europe and the effects of the Americas non-core product divestiture.
At present, Watts Water carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked stocks in the same sector include Nanometrics Incorporated , Badger Meter Inc. (BMI - Free Report) and M/A-Com Technology Solutions Holdings, Inc. (MTSI - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Should Watts Water (WTS) Be in Your Portfolio Right Now?
We have issued an updated research report on Watts Water Technologies, Inc. (WTS - Free Report) on May 23, 2016. The company is set to benefit from the European transformation program, acquisitions and growth in operational efficiencies. However, macroeconomic weakness in Europe, unfavorable foreign currency exchange rates and oil price volatility will weigh on near-term results.
Watts Water’s transformation initiatives in the Americas and EMEA will drive its results. In March, the company began shipping from its new state-of-the-art distribution facility in Columbus, OH. This center of excellence will streamline the distribution process via new management warehouse and scanning technology.
Watts Water remains focused on its acquisition strategy. The company has completed 21 acquisitions in the last 10 years. AERCO, which was acquired in 2014, was successfully integrated into Watts Water in 2015 and the synergies were realized during the first year of ownership. AERCO posted record sales, and the business also generated strong profits and cash flows in 2015. Watts Water expects the trend to continue in 2016.
Further, the Apex acquisition generated about $3 million in sales during the first quarter of 2016. Sales outside China represented 46% of total Asia-Pacific sales in the first quarter versus 16% a year ago, driven by the addition of Apex plus growth in valve portfolio in countries like Australia, Indonesia and Japan. The company expects this trend to continue as it expands its business into more mature, co-driven countries.
In early April, the company announced that two distribution sites would be closed and phased out by the end of June. To date, this brings the number of announced site closures in the Americas to five, helping the company achieve its goal by reducing footprint by 30%. Additional site closures are planned and will be announced in due course over the next several quarters.
Recently, Watts Water hiked its quarterly dividend by 6% to 18 cents per share, reflecting its commitment to enhance shareholder value. This hike will increase its dividend yield from the current 1.23% to 1.28%. Its share repurchases activities will also drive growth.
However, the company maintained its full-year 2016 outlook and expects full-year organic sales growth in the low-single digits with sales by region falling in line. Per the company, oil price volatility and the adverse impact of currency translation could affect project funding and the expected timing of projects in the Middle East region.
Further, a stronger U.S. dollar, primarily against the euro and the Canadian dollar, will continue to be a headwind for Watts Water. Moreover, the top line remains challenged by foreign-exchange headwinds, continued softness in Europe and the effects of the Americas non-core product divestiture.
At present, Watts Water carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked stocks in the same sector include Nanometrics Incorporated , Badger Meter Inc. (BMI - Free Report) and M/A-Com Technology Solutions Holdings, Inc. (MTSI - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>