Zurn Water Solutions Corporation (ZWS Quick QuoteZWS - Free Report) recently entered into a deal with Elkay Manufacturing Company to combine their businesses in an all-stock transaction, which values Elkay at $1.56 billion.

Zurn Water’s shares jumped 12.1% yesterday, ending the trading session at $33.40.

Founded in 1920, Elkay is a leading provider of stainless steel sinks, faucets and drinking solutions, with a solid presence across the United States, China and Mexico. Based in Downers Grove, IL, it employs more than 1,800 personnel across the globe.

Inside the Headlines

The transaction is anticipated to create a standalone company — Zurn Elkay Water Solutions Corporation — a leading provider of sustainable water solutions and products in the growing commercial drinking water solutions industry. On completion of the transaction, the ownership of about 71% stake in the new company will be with Zurn Water Solutions shareholders and the remaining around 29% stake with Elkay shareholders.

The combined company will leverage the Zurn Business System that would allow it to drive its operational and financial performance. As noted, the merger is likely to unlock opportunities of high growth, margin expansion and healthy free cash flow for the combined company and improve its leverage position, thus enhancing its shareholders' value.

The transaction is anticipated to generate cost synergies of about $50 million by 2025, with $25 million expected to be realized in the first year. The synergies are likely to be supported by higher business efficiencies, cross-marketing and the combined rep network.

The merger is anticipated to close in the third quarter of this year, subject to customary closing conditions and regulatory approvals. Zurn Water is also expected to hike its quarterly cash dividend to 7 cents per share post completion of the transaction.

It’s worth noting that Zurn Elkay Water Solutions, which will be based in Milwaukee WI, will trade under the ticker symbol “ZWS”.

Zacks Rank, Price Performance and Earnings Estimate Trend

With a market capitalization of $4.2 billion, Zurn Water currently sports a Zacks Rank #1 (Strong Buy). Solid product offerings, a healthy demand environment and acquired assets are likely to drive Zurn Water’s performance in the quarters ahead. Also, the company’s focus on operational execution and shareholder-friendly policies bode well.

Image Source: Zacks Investment Research

In the past month, Zurn Water’s shares have gained 2.1% against the industry’s decline of 8.2%.

The Zacks Consensus Estimate for the company’s earnings has been stable at $1.12 per share for 2022, while the same for 2023 has been raised 0.8% to $1.31 in the past 30 days.

Other Key Picks

Some other top-ranked companies from the same space are discussed below.

AZZ Inc. (AZZ Quick QuoteAZZ - Free Report) presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 16.90%, on average.

In the past 30 days, AZZ’s earnings estimates have been stable for both fiscal 2022 (ending February 2022) and fiscal 2023 (ending February 2023). Its shares have lost 6.4% in the past month.

Franklin Electric Co., Inc. (FELE Quick QuoteFELE - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 16.27%, on average.

In the past 30 days, Franklin Electric’s earnings estimates have been stable for 2022. FELE’s shares have lost 6.5% in the past month.

SPX FLOW, Inc. (FLOW Quick QuoteFLOW - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 40.42%, on average.

SPX FLOW’s earnings estimates have increased 0.3% for 2023 in the past 30 days. FLOW’s shares have gained 0.1% in the past month.