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Pentair Rides on Investments & Acquisitions Amid Weak Demand

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On Jul 8, we issued an updated research report on Pentair plc (PNR - Free Report) . The company is poised to gain from introduction of products, acquisitions and investments to support its growth initiatives in the areas of pool, and residential and commercial water treatment. However, the company’s near-term results will be affected by lower production amid the coronavirus crisis and weak demand across its business.

Investments & Acquisitions to Drive Growth

Pentair plans to make some incremental investments in the Aquatic Systems business in order to improve growth rate. The company is focused on expanding its digital transformation, innovation, technology and brand building services. Pentair expects to introduce ample water treatment solutions over the next year, which will enable it to generate higher revenues.

The company plans to expand particularly in the areas of pool and residential and commercial water treatment through acquisitions, and focus on China and Southeast Asia. It expects strong pool performance in the current year, boosting its Consumer Solutions business. In February 2019, Pentair acquired Aquion, which helped it expand scope and customer offerings in the residential and commercial water treatment arena. In the same year, Pentair acquired Pelican Water Systems, which provided residential whole home water treatment systems. Pelican Water Systems adds new and complementary products and services to the Pentair portfolio, enabling it to meet its consumers’ residential water needs. These investments bode well for solid growth opportunities in the current year.

Cost-Reductions Initiative to Stoke Growth

Pentair is implementing actions to reduce its cost structure in the wake of the current demand environment and economic uncertainties on account of the coronavirus crisis. The company is taking necessary actions to mitigate the expected top-line decline. Further, productivity improvement and price hikes implemented to combat higher input costs will continue to aid results. Further, Pentair has taken measures to enhance liquidity, including implementing cost-saving initiatives and temporarily suspending share repurchases.

Weak Demand & Production Curtailment to Hurt Pentair

Pentair has suspended operations in many of its major facilities due to lower production amid the coronavirus crisis. The company has withdrawn its guidance for the second quarter and for the current year on account of the uncertainty of the duration and extent of the pandemic. Pentair had been forced to reduce operations in several facilities amid the pandemic. It expects significant demand softness across most of its businesses in the current year.

Moreover, the company’s Water Solutions business is likely to see sluggish growth in residential system due to lesser retail traffic, while the commercial systems business might be affected by muted demand due to temporary shutdowns across the hospitality and restaurant industries.

Pentair’s Industrial & Flow Technologies (IFT) segment sales are mostly tied to various industrial markets. Hence, lower industry sales might be a headwind for the segment. Apart from this, the segment’s residential and irrigation flow business will be hurt by the current weakness in the agricultural sector.

Price Performance

Pentair’s shares have gained 11.5% over the past three months, compared to the industry’s growth of 17.1%.

Zacks Rank & Stocks to Consider

Pentair currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. (LAKE - Free Report) , Energous Corporation (WATT - Free Report) and TPI Composites, Inc. (TPIC - Free Report) . While Lakeland Industries sports a Zacks Rank #1 (Strong Buy), Energous Corporation and TPI Composites carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 127.8% for fiscal 2020. The company’s shares have appreciated 50.9% in the past three months.

Energous Corporation has an expected earnings growth rate of 44% for 2020. The stock has surged 252.6% over the past three months.

TPI Composites has an estimated earnings growth rate of 197% for the ongoing year. The company’s shares have rallied 62.3% in the past three months.

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