Watts Water Technologies, Inc. (WTS Quick QuoteWTS - Free Report) is likely to benefit from higher volume, pricing and restructuring actions, new product innovation and impact of the tax reform despite raw material inflation.

 

Currently, the manufacturer of water safety and flow control products for the water quality, water conservation, water safety, and water flow control markets carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at present.

 

 

The Zacks Consensus for fiscal 2018 and fiscal 2019 has gone up 7% and 5%, respectively, over the past 30 days.

 

The Zacks Consensus Estimate for earnings for fiscal 2018 and fiscal 2019 reflects year-over-year growth of 20% and 10%, respectively. The company has a long-term earnings growth rate of 12%, higher than the industry’s rate of 11% which holds promise.

 

 

 

The company outperformed the industry it belongs to in the past year. The stock has gained 32% while the industry rose 20%.

 

 

The company currently has a VGM score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A along with some other key metrics makes the company a solid choice for investors.

 

 

The company has an impressive earnings history having outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average beat of 4%.

 

 

For 2018, Watts Water expects organic sales to increase approximately 3%. In the Americas segment, revenues will grow organically in the range of 3-5% in 2018, with solid growth across most of its product lines. Furthermore, the company predicts organic sales growth in the range of 1-3% in Europe segment for the full year. It anticipates witnessing improved performance in both fluid solutions and drainage product lines based on continued positive end markets. In the Asia-Pacific segment, Watts Water projects organic sales to grow between 7% and 10% for the year, with strong growth both inside and outside of China. Watts Water is also poised to benefit from the tax reform in 2018.

 

Watts Water estimates its consolidated operating margin to expand in the range of 50-70 basis points, which includes approximately $10 million of incremental investments. Operating margin expansion in 2018 will be driven by higher volume and continued productivity increment efforts, including restructuring savings. The company continues to reinvest a portion of the productivity savings in selling and marketing, R&D and IT systems to fund future growth. Pricing actions taken in the fourth quarter should also aid it to partially mitigate commodity inflation.

 

 

Notably, Watts Water has successfully completed its transformation efforts. The company has started to realize the expected benefits of portfolio rationalization, footprint optimization and global sourcing while simultaneously reinvesting for future growth. With completion of these efforts, the company is likely to focus on bolstering growth through new product development, geographic expansion and key account management.

 

In the Americas, the company expects the residential and non-residential markets to grow year over year in 2018. The indicators are trending positively in the non-residential market as well. Furthermore, institutions require more complex plumbing and heating solutions, so growth in the sector is particularly beneficial to Watts Water, given its expanded product offering. In Europe, the overall outlook is generally stable. Total Europe construction spending is anticipated to grow further. In the Asia-Pacific region, the economy is expected to remain steady with China’s GDP slightly down, but still at robust levels, while the Middle East GDP is expected to be up in 2018. Notably, total construction spending in China is expected to moderately improve in 2018. Other Asia-Pacific regions will remain relatively stable.

 

 

Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.

 

 

Some better-ranked stocks in the sector include DST Systems, Inc. , Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) and Mellanox Technologies, Ltd. . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

DST Systems has a long-term earnings growth rate of 10%. Its shares have gained 34%, over the past year.

 

Lam Research has a long-term earnings growth rate of 15%. The company’s shares have been up 72% during the past year.

 

Mellanox Technologies has a long-term earnings growth rate of 15%. The stock has gained 40% in a year’s time.

 

 

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