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Franklin Electric's (FELE) New Aqua Buyout to Aid Water Systems

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Franklin Electric Co., Inc. (FELE - Free Report) yesterday announced that it acquired Indianapolis, IN-based New Aqua, LLC together with its subsidiaries (wholly-owned). The transaction value was $150 million.

New Aqua engages in providing drinking water and water treatment equipment for commercial use and residential purposes. It employees 230 people and has 590 dealers in the United States. In 2020, the company generated revenues of $68 million and its earnings before interest, tax, depreciation and amortization (EBITDA) margin was 17%.

Inside the Headlines

As part of the purchase, New Aqua’s leading brands, Hellenbrand and Aqua Systems, are now part of Franklin Electric. The buyout enhances Franklin Electric’s footholds within the water systems solutions industry, especially within the water treatment market for residential and commercial customers.

Financially, the buyout is predicted to boost Franklin Electric’s earnings by 4-6 cents per share in 2021. Including this impact, the company has increased its earnings (before restructuring expenses) projection to $2.85-$3.05 from the previously mentioned $2.80-$3.00.

The acquired assets have been integrated with Franklin Electric’s Water Systems segment. The segment generated revenues of $197.6 million in the first quarter of 2021, reflecting year-over-year growth of 20%. Demand for surface pumping and groundwater pumping equipment was healthy in the reported quarter, while that for dewatering equipment was weak.

Franklin Electric’s Buyout Activities

Acquiring businesses is an effective way for the company to gain access to new markets, expand its product line and enhance its customer base. Notably, acquired assets had positive impacts of $7.2 million on the company’s water business and $16.3 million on its distribution business in the first quarter of 2021.

In April 2021, Franklin Electric acquired Livermore, CA-based Puronics, Inc. Notably, the latter specializes in providing water treatment products for use in commercial and residential markets. Also, it engages in providing related services to its clients.

Also, the company purchased Lubbock, TX-based Gicon Pumps & Equipment Inc. in January 2021. Notably, the latter is a groundwater distributor in Texas.

Zacks Rank, Estimate Trend and Price Performance

With a $4-billion market capitalization, Franklin Electric currently carries a Zacks Rank #2 (Buy). The company is well-positioned to benefit from its solid product offerings, healthy end-market conditions and acquired assets. However, the rise in costs and expenses as well as headwinds arising from international operations are concerning.

In the past three months, the company’s shares have gained 15.7% as compared with the industry’s growth of 4%.




 

Meanwhile, the Zacks Consensus Estimate for its earnings is pegged at $2.89 for 2021 and $3.11 for 2022, reflecting growth of 6.3% and 4.7% from the respective 30-day-ago figures. Also, the company’s earnings estimate for the second quarter of 2021 is pegged at 83 cents per share, reflecting an increase of 3.8% from the 30-day-ago figure.

Some other companies from the same industry engaging in buyout activities in the past few months are Regal Beloit Corporation (RBC - Free Report) , Eaton Corporation plc (ETN - Free Report) and AZZ Inc. (AZZ - Free Report) . Notably, the companies presently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 30 days, earnings estimates for these companies have improved for the current year. Also, its earnings surprise for the last reported quarter was 17.86% for Regal Beloit, 15.20% for Eaton and 5.08% for AZZ.

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