Shares of Watts Water Technologies, Inc. (WTS Quick QuoteWTS - Free Report) have moved up a healthy 56% over the past year, driven by a balanced cash allocation strategy and solid revenues on the back of a holistic growth model. Earnings estimates for the current fiscal have increased 42.6% over the past year and the same for the next fiscal has moved up 43.3%, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.

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Growth Drivers

Headquartered in North Andover, MA, Watts Water designs, manufactures and sells various water safety and flow control products for maintaining water quality, water conservation, water safety and water flow control markets. The products aim to reduce labor dependency and offer seamless connectivity to monitor water pipe systems more accurately and continuously than manual water products.

The company aims to launch smart and connected products that are likely to provide it with further differentiation in the marketplace. Watts Water is benefiting from aggressive cost reduction actions along with a strong balance sheet. It focuses on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives. The company has started to realize the expected benefits of portfolio rationalization, footprint optimization and global sourcing while simultaneously reinvesting for future growth through product development, geographic expansion and key account management.

Watts Water’s operating margin expansion is likely to be driven by higher volume and productivity optimization efforts. The company believes that the Asia-Pacific segment’s margin will expand primarily on higher volume. Furthermore, the operating margin in the Americas segment will expand, driven by volume leverage and productivity initiatives. Watts Water expects its pricing actions to partly mitigate commodity inflation. In addition, the company is more vertically integrated than most industry participants, with its own foundry to produce castings and forgings. This, in turn, reduces reliance on third-party supply chain vendors for these products.

Thanks to the robust performance in the third quarter, Watts Water has raised full-year 2021 outlook. It expects total organic revenues to increase 14% to 17% compared with the prior outlook of 10% to 14% rise with pent-up demand for repair and replace markets. Adjusted operating margin is anticipated to expand 100-150 basis points (bps) year over year.

The stock has a long-term earnings growth expectation of 8%. It delivered an earnings surprise of 14.6%, on average, in the trailing four quarters.

Other Key Picks

Another top-ranked stock in the broader industry is DZS Inc. (DZSI Quick QuoteDZSI - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company provides broadband connectivity platforms and communications software solutions in more than 100 countries. Earnings estimates for the current year for DZS have moved up 39.1% over the past year, while that for the next year has soared 38.3%.

Anterix Inc. (ATEX Quick QuoteATEX - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors. It has delivered an earnings surprise of 3.9%, on average, in the trailing four quarters.

Over the past year, Anterix has gained 90.2%. The company is offering transformative broadband services that enable the modernization of critical infrastructure for various utility firms.

Wireless Telecom Group, Inc. carries a Zacks Rank #2. It has delivered an earnings surprise of 52.5%, on average, in the trailing four quarters.

Earnings estimates for the current year for Wireless Telecom have moved up 185.7% over the past year, while that for the next year has surged 275%. The company offers high-quality products that enable innovation across existing and emerging wireless technologies.