Pentair: Sitting in the Water
This midsize Midwestern manufacturer has sound finances and a smart business plan. But is it too slow of a grower for the stock to beat the market?
It's tough not to pull for Pentair. The CEO, Randy Hogan, and the rest of the company's leadership showed guts two years ago by selling Pentair's lagging tool business and reinvesting in water-related businesses -- filtration systems, pool supplies and pumps. That's now about 75% of the company's business. The other 25% is "enclosures" to protect electronic equipment. But H20 is the thing and the stock -- forgive the expression -- is treading water. After an early-year advance from $34 to $41, Pentair (symbol PNR) is back to $33, not far above the 52-week low of $30 and well under the $40 to $45 range it held for most of 2005.
In some ways, this mirrors what's happened in the overall stock market. And if you adopt a pure value perspective, $33 seems to be a great price for this fine company. Nothing on Pentair's balance sheet or cash flow statement suggests serious problems. The stock yields 1.7% and the Golden Valley, Minn., company regularly raises dividends by 10% a year. Pentair hasn't had any controversies with the quality of its products. CEO Hogan is a well-spoken engineer by training who answers questions fully and patiently. He uses phrases like "in good stead" and "moving apace" to describe the businesses and is careful not to promise more than he thinks the company can deliver.
So when Pentair reported a mildly weaker first quarter than most of Wall Street wanted, it was sad (though not a shock) to see the stock get dumped just as hard as a much-less-likeable company. The May-June market correction followed, dispelling hopes for a fast recovery. So it's fair to ask: Is Pentair too much of a plodder to do any better than just follow along wherever the market goes?
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Getting back to the numbers, analysts, on average, see Pentair earning $2.11 per share this year, according to Thomson First Call. That would mark a 20% gain from last year's $1.76. But Pentair needs a powerful second half to make $2.11. The average estimate for 2007 is $2.60 a share, a 23% jump over the '06 figure. So, at $33, you're paying 16 times this year's profit estimate and 13 times next year's. A recent JPMorgan report compares the value of Pentair's stock to a half-dozen other companies that have major water businesses. Most of them sport price-earnings ratios in the low 20s.
But at the same time, Morgan reports that Pentair's return on capital is lower than most of its peers, so Pentair's discounted price-earnings ratio seems to be justified. That means that for the shares to appreciate faster than the overall market, the company will need either to boost the growth rate of its businesses by selling new products or through acquisitions that add to growth. Meantime, most analysts peg Pentair's long-term earnings growth rate at 12% to 15% a year. In sum, Pentair isn't spectacular; its stock is unlikely to shoot the lights out. But is a solid and steady holding, one that's suitable for patient investors.
--Jeffrey R. Kosnett
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Rally Fades on Mixed AI Revolution News: Stock Market Today
All three main U.S. equity indexes opened higher but closed lower as a seven-session winning streak for the S&P 500 came to an end.
-
Stretch Your Holiday Shopping Budget Further with These Under-$50 Gifts That Don't Feel Cheap
Amazon October Prime Day is the perfect chance to nab some under-$50 gifts that feel more expensive than they are (because normally they would be).
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have Today
Bank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have Today
ORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity Risk
Amid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have Today
Sherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have Today
UNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector Exposure
New, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the Fed
A lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?
Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?