Pentair plc (PNR Quick QuotePNR - Free Report) has been riding on increased demand for swimming pools as consumers continue to enhance their at-home quality of life by investing in pools. Demand for pool maintenance remains strong. Focus on expanding digital transformation, innovation, technology and brand building, and making acquisitions in the areas of pool and residential and commercial water treatment remain key catalysts. Its ongoing transformation program to accelerate growth and drive margin expansion is expected to bear fruit in the long haul.

Shares of Pentair have gained 25.6% in the past six months compared with the industry’s rally of 20.8%.
 

Image Source: Zacks Investment Research

The company currently has a Zacks Rank #3 (Hold) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s take a look into the factors that make this stock worth holding on to.

Strong Q2 Results & Record Backlog: Pentair reported second-quarter 2021 adjusted earnings per share of 84 cents, which not only beat the Zacks Consensus Estimate of 80 cents but also its guidance of earnings per share in the range of 75 cents to 80 cents. The bottom line improved 42% year over year driven by strong order levels. The company also ended the quarter with record backlog levels.

Upbeat Outlook for 2021: Backed by the trend in orders and record backlog, Pentair expects earnings per share in 2021 between $3.30 and $3.40. The mid-point of the range indicates year-over-year growth of 34%. Sales growth for the year is projected at approximately 21% to 23% on a reported basis. Pentair’s productivity improvement efforts and price increases implemented to counter the impact of cost inflation are likely to aid margins. Segment income guidance is expected to be up approximately 30% to 34%.

Estimates North Bound: Over the past 60 days, the Zacks Consensus Estimate for earnings for both fiscal 2021 and 2022 has moved up 6%.
Positive Earnings Surprise History: Pentair has outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 20.9%.

Healthy Growth Prospects: The Zacks Consensus Estimate for earnings per share for fiscal 2021 for Pentair is currently pegged at $3.39, suggesting year-over-year growth of 35.6%. For fiscal 2022, the consensus mark for earnings is pegged at $3.70, indicating year-over-year improvement of 9.3%. The stock has an estimated long-term earnings growth rate of 14.7%.

Growth Drivers in Place

Pentair has been witnessing strong demand for swimming pools as consumers stayed home amid the pandemic, which triggered the desire to invest in their backyards. The momentum is strong even this year as consumers continue to enhance their at-home quality of life by investing in pools.  Several builders are reporting backlogs well into next year. Apart from pool construction, demand for pool maintenance remains strong. Considering that nearly 80% of the Consumer Solutions segment serves residential markets, this trend bodes well for the segment.

In the first quarter of 2021, Industrial & Flow Technologies segment returned to growth for the first time in five quarters aided by strong performance in residential and recovery in commercial and industrial businesses. This segment is expected to continue performing well for the balance of the year.

During second-quarter 2021, Pentair launched a Transformation program to accelerate growth and drive margin expansion. The program, structured in multiple phases, is expected to drive operational efficiency, streamline processes, and reduce complexity while meeting financial objectives. It will also be using automation to increase productivity. Pentair is projecting at least 300 basis points of margin expansion by 2025 through the program.

Pentair is also investing in digital transformation, innovation and technology and acquisitions in the high-growth areas of pool and residential and commercial water treatment, which is commendable. In 2019, Pentair acquired Aquion, Inc. and Pelican Water Systems. Aquion offers a diverse line of products for the residential and commercial water treatment industry. Pelican provides residential whole home water treatment. In December 2020, the company completed the buyout of Rocean in a bid to expand its core water treatment solutions in the residential and commercial water business. In May 2020, Pentair completed the acquisition of assets of Ken’s Beverage, Inc, which provides the company a valuable national direct service network to expand its commercial water treatment business. It has recently entered into an agreement to buy Pleatco for $255 million in cash, in an effort to expand footprint in the aftermarket water and air filtration space.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector include Encore Wire Corporation (WIRE Quick QuoteWIRE - Free Report) , Lincoln Electric Holdings, Inc. (LECO Quick QuoteLECO - Free Report) and The Manitowoc Company, Inc. (MTW Quick QuoteMTW - Free Report) . All of these stocks sport a Zacks Rank #1.

Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. The company’s shares have gained 32% in the past six months.

Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. Over the past six months, the stock has appreciated 8%.

Manitowoc has an estimated earnings growth rate of 314% for fiscal 2021. The company’s shares have gained 5% over the past six months.