Watts Water Technologies, Inc. (WTS) recently began rebounding from a key trend line after hitting a new multi-year high at $37 in mid May. This Zacks #1 rank stock has an average earnings surprise of 26% over the last year and trades at a discount to its peer’s with a forward P/E of 16.5X.
Company Description
Watts Water Technologies, Inc. designs, manufactures and sells water safety and flow control products in North America, Europe and China. The company was founded in 1874 and has a market cap of $1.16 billion.
Shares of WTS have been trending higher for most of the last 14 months as the global economic scene has continued to improve. Watts’ better than expected Q1 results from May 4 showcased the impact the improving environment has had on the company’s business.
First-Quarter Results
Revenue for the period was up 10% from last year to $319 million. Earnings also came in strong at 44 cents per share, 37.5% ahead of the Zacks Consensus Estimate. Watts now has an average earnings surprise of 26% over the last four quarters.
The company saw strong sales growth from 2 of its 3 regions, with North America up 12% and Europe close behind at 8%, comprising 37% of the company’s total revenue. Sales in China were disappointing, down 14%, although the $5 million in revenue represents just a fraction of Watts’ total sales volume.
CEO Patrick O’Keefe sounded an optimistic tone on the results, saying “We were encouraged by the increased levels of activity in the first quarter, both in the retail and wholesale markets in the U.S.”
Balance Sheet
With $253 million in cash and equivalents and just $303 million in debt, the company’s strong balance sheet provides additional flexibility. Its debt/equity ratio of 35% is below its peer average of 38%.
Estimates
We saw estimates take a nice jump higher on the good quarter, with the current year adding 20 cents to $1.86. The next-year estimate is also up 20 cents, climbing to $2.13, a solid 15% growth projection.
In spite of the recent gains and the new high, shares still have value, trading with a forward P/E multiple of 16.5X, a slight discount to its peers 17.5X.
2-Year Chart
WTS recently began rebounding from a key trend line after pulling back from the new multi-year high in mid May. The stochastic below the chart is signaling that shares are trading safely away from overbought territory, take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
