Here’s why Watts Water (WTS) looks like a good investment – August 19, 2022

Watts Water Technologies, Inc. (WTS Free Report) is a stock that investors may consider adding to their portfolio to combat the highly volatile market environment and take advantage of its upside potential. The company currently has a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Why WTS is an attractive choice

Watts Water has an impressive surprising earnings history. The company beat estimates over the past four quarters, delivering an average earnings surprise of 14.9%. The stock has long-term earnings per share (EPS) growth expectations of 8%.

The Zacks Consensus Estimate for 2022 earnings of $6.58 per share implies growth of approximately 19.2% from prior period levels. For 2023, the consensus estimate for earnings is pegged at $6.64, indicating annual growth of 0.9%. For revenue, the consensus estimate was fixed at $1.94 billion and $1.98 billion, indicating an increase of 7.4% and 1.9%, respectively.

In the last reported quarter, Watts Water posted adjusted earnings of 2.11 per share in Q2 2022, up 43% year-over-year and beating the Zacks Consensus Estimate by 29.5%. The company’s quarterly net sales rose 13% year over year to $527 million. The top line beat the consensus estimate by 7.8%. Organic sales increased 16% year over year. Amid pandemic-induced supply chain issues, double-digit organic growth in the Americas and synergies from acquisitions boosted Watts Water’s performance.

Driven by strong second-quarter results, the company raised its outlook for 2022. For full-year 2022, Watts Water expects organic sales growth to be in the range of 8-11%, compared with an earlier range of 3-8%. Adjusted operating margin is now estimated at between 15.4% and 15.9%, with adjusted margin growth between 110 basis points (bps) and 160 bps. The company previously guided adjusted operating margin to be between 14.5% and 14.9%, with adjusted margin growth between 20 basis points and 60 basis points.


Image source: Zacks Investment Research

Shares of Watts Water have lost 5.3% over the past year, compared with the Zacks subindustry’s decline of 11.2%. WTS shares are down 26% from their 52-week high of $212 on November 11, 2021, making them relatively affordable for investors.

Strong fundamental drivers

Headquartered in North Andover, Massachusetts, Watts Water designs, manufactures and markets a variety of water safety and flow control products for the water quality, water conservation, water safety and water flow control markets.

Watts Water is focused on increasing organic growth, margin expansion and reinvesting in productivity initiatives. Company performance is enhanced by proper procurement and operations management amid supply chain issues.
An increased geographic footprint, aggressive cost-cutting efforts and a strong balance sheet are the main headwinds. A focus on differentiated product offerings provides a greater opportunity to increase its market position.

Weak macroeconomic conditions and supply chain disruptions are affecting its markets, customers and suppliers. Adverse foreign currency conversion and geopolitical instability in Europe are other concerns.

Other stocks to consider

Some better-ranked stocks from the broader tech sector worth noting are Arista Networks (countries Free report), Intuit (INTU Free report) and Mete Badgerr (BMI Free report). Arista Networks and Badger Meter carry a Zacks Rank #1 (Strong Buy), while Intuit carries a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s 2022 earnings is pegged at $2.30 per share, up 7% over the past 60 days. Badger Meter earnings beat the Zacks Consensus Estimate in three of the previous four quarters, averaging 12.6%. BMI shares have lost 2.1% of their value over the past year.

The Zacks Consensus Estimate for Arista Networks’ 2022 earnings is pegged at $3.99 per share, up 8.4% over the past 60 days. The long-term earnings growth rate is expected to be 18.6%.

ANET’s earnings beat the Zacks Consensus Estimate over the last four quarters by an average of 10.1%. ANET shares are up 43.5% over the past year.

The Zacks Consensus Estimate for Intuit’s fiscal 2022 earnings is pegged at $11.72 per share, unchanged over the last 60 days. Long-term earnings growth is expected to be 15.6%.

Intuit’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, averaging 16.8%. INTU shares have lost 12.4% over the past year.

Leave a Comment