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Here's Why Watts Water (WTS) Seems an Attractive Investment

Uncertainty prevailing over global macroeconomic conditions, soaring inflation, geopolitical instability due to the Ukraine war and lingering supply-chain issues are keeping investors on tenterhooks.

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

WTS stock is down 25% from its 52-week high of $207.67 on Nov 11, 2021, making it relatively affordable for investors. Shares of Watts Water have lost 22.9% in the past year compared with the Zacks sub-industry’s decline of 18.6%.

Watts Water has an impressive earnings surprise history. The company outpaced estimates in each of the trailing four quarters, delivering an average earnings surprise of 16.7%. The stock has long-term earnings per share growth expectation of 8%.

The Zacks Consensus Estimate for 2022 earnings of $7.05 per share suggests growth of approximately 27.7% from the year-ago period. The estimate has been revised upward by 3.8% over the past 60 days. For 2023, the consensus mark for earnings is pegged at $6.81 per share.

For revenues, the consensus estimate is pegged at $1.96 billion, indicating an increase of 8.5% year over year. For 2023, the consensus estimate is pegged at $1.96 billion.

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Zacks Investment Research


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Strong Fundamental Drivers

Headquartered in North Andover, MA, Watts Water designs, manufactures and sells various water safety and flow control products for the water quality, water conservation, water safety and water flow control markets.

In the last reported quarter, Watts Water’s adjusted earnings of $1.79 per share increased 29% on a year-over-year basis and beat the Zacks Consensus Estimate by 14%. The company’s quarterly net sales rose 7% year over year to $488 million. The top line surpassed the consensus estimate by 2.5%. Organic sales increased 12% year over year.

Watts Water’s performance benefited from double-digit organic growth in the Americas and solid improvement in Asia. In the third quarter, favorable pricing and inventory availability helped the company to meet customer demand. The company expects to benefit from its smart and connected strategy, and growth in the OEM business owing to government energy incentives.

Watts Water is focused on enhancing organic growth, expanding margin and reinvesting in productivity initiatives. The company’s performance is gaining from proper sourcing and operations management amid supply-chain troubles.

An augmented geographic footprint and a strong balance sheet are acting as major tailwinds. Focus on differentiated product offerings provides a greater opportunity to expand WTS’ market position.

Driven by strong third-quarter results, the company raised its outlook for 2022. For full-year 2022, Watts Water expects organic sales growth in the range of 11-12% compared with the earlier guided range of 8-11%. The adjusted operating margin is now estimated to be between 16.2% and 16.4%, with adjusted margin growth between 190 bps and 210 bps. Earlier, the company had guided the adjusted operating margin to be between 15.4% and 15.9%, with adjusted margin growth between 110 bps and 160 bps.

However, the energy crisis and rising labor overhead are weighing down on the company’s performance. Rising inflation, weak macroeconomic conditions, and supply-chain disruptions continue to affect its markets, customers and suppliers.

Other Stocks to Consider

Some other better-ranked stocks from the broader technology space are Arista Networks ANET, Blackbaud BLKB and Jabil JBL. Arista Networks and Jabil currently sport a Zacks Rank #1 (Strong Buy), while Blackbaud carries a Zacks Rank #2.

The Zacks Consensus Estimate for Arista Networks’ 2022 earnings is pegged at $4.35 per share, up 7.7% in the past 60 days. The long-term earnings growth rate is anticipated at 17.5%.

Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 12.7%. Shares of ANET have increased 5.7% in the past year.

The Zacks Consensus Estimate for Blackbaud’s 2022 earnings is pegged at $2.59 per share, up 1.6% in the past 60 days. The long-term earnings growth rate is anticipated at 4%.

Blackbaud’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 4.9%. Shares of BLKB have declined 29.7% in the past year.

The Zacks Consensus Estimate for Jabil’s fiscal 2023 earnings is pegged at $8.18 per share, rising 3.8% in the past 60 days. The long-term earnings growth rate is anticipated at 12%.

Jabil’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 9.3%. Shares of JBL have increased 11.4% in the past year.


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