Tag: US Market
Process:
This strategy’s distinctive approach remains in place under its new leader, earning it an Above Average Process rating. Former lead manager Benjamin Segal said he favoured the mid-cap universe because firms of that size–along with those in the smaller part of the large-cap range–tend to be well-enough established that they can withstand some setbacks but remain less familiar to many global investors and thus often sell at attractive prices. They can also be takeover targets. Former comanager Elias Cohen, who became lead manager upon Segal’s departure on June 30, 2021, follows the same approach. This team wants steadily growing firms, but it also focuses on the quality of company management. The team is willing to own firms without hefty margins if other traits are impressive. The strategy has a 15% limit on emerging-markets exposure, but the portfolio has been far below that for a long time. The turnover rate tends to be moderate. Ideas can come from Cohen, comanager Tom Hogan, or the analysts, and decision-making is collaborative, though the lead manager has final authority for portfolio decisions.
Portfolio:
Portfolio shows that this fund makes fuller use of the market-cap spectrum than most peers and its chosen benchmark, the MSCI EAFE Index. The fund had about 33% of its assets in midcaps and another 4% in small caps (as classified by Morningstar), versus just 10% in mid-caps and almost nothing in small caps for the index and just slightly higher figures for the foreign large-growth and foreign large-blend category averages. The portfolio’s figures are nearly identical to those from one year earlier, showing that new lead manager Elias Cohen has maintained the strategy’s broad market-cap approach even as he traded several stocks into and out of the portfolio. Cohen, like former manager Benjamin Segal, favours the mid-cap and smaller large-cap universes. The portfolio often lies on the border between the growth and blend portions of the style box, but the latest portfolio is fully in the blend region. The strategy continues to spread its assets widely, with none of the 78 stocks receiving more than 2.6% of assets. Emerging-markets exposure remains below 5% and is limited to China and India.
People:
This strategy’s long-tenured lead manager, Benjamin Segal, left Neuberger Berman on June 30, 2021, to become a high school math teacher. Replacing him as lead manager was former comanager Elias Cohen. The firm had earlier promoted Thomas Hogan from the analyst ranks to comanager on Jan. 20, 2021. Cohen had worked with Segal for almost 20 years, most recently as comanager–for two years on this strategy and four years on sibling Neuberger Berman International Select NILIX. The analyst staff remained intact including one addition in March 2021. Three of the six members of the analyst team have been in place since 2008 or earlier. They and the managers also talk with the members of Neuberger Berman’s emerging-markets team. Cohen and Hogan each have more than $1 million invested in this strategy.
Performance:
It’s a bit complicated assessing this fund’s performance, but all in all, the fund has a solid record as a core international equity choice. This fund launched in 2005 and was known until late 2012 as Neuberger Berman International Institutional. But an identical fund that was merged into it in January 2013 posted a strong 10-year record prior to the merger, using the same strategy, under recently departed lead manager Benjamin Segal. Another complication is that although this fund’s growth leanings result in its placement in the foreign large-growth category, it is not very aggressive in that direction, with its portfolio often landing around the border between growth and blend or, as currently, in the blend box. That’s typically been a disadvantage versus growthier rivals for a long time. The managers aim to outperform when markets tumble; although it did not do so in the bear market of early 2020, it did hold up well during the 2014 sell-off and the 2015-16 bear market.
(Source: Morningstar)
Price:
It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s second-costliest quintile. That’s poor, but based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we still think this share class will be able to overcome its high fees and deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Bronze.
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(Source: Morningstar) (Source: Morningstar)
About Funds:
A growing conviction in the duo that manages JPMorgan U.S. Large Cap Core Plus and its Luxembourg resided sibling JPM U.S. Select Equity Plus, and the considerable resources they have effectively utilised, lead to an upgrade of the strategy’s People Pillar rating to Above Average from Average. The strategy looks sensible and is designed to fully exploit the analyst recommendations by taking long positions in top-ranked companies while shorting stocks disliked by the analysts. Classic fundamental bottom-up research should give the fund an informational advantage. The portfolio is quite diversified, holding 250-350 stocks in total with modest deviations from the category index in the long leg. The 30/30 extension is broadly sector-, style-, and beta-neutral. Here the managers are cognizant of the risks of shorting stocks, where they select stocks on company-specific grounds or as part of a secular theme. For example, the team prefers semiconductors, digital advertising, and e-commerce offset by shorts in legacy hardware, media, and network providers. Short exposure generally stands at 20%-30%, with the portfolio’s net exposure to the market kept at 100%. The strategy’s performance since inception, which still has some relevance given Bao’s involvement, has been outstanding.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
Evergy must secure constructive regulatory outcomes in Missouri and Kansas to support growth plans that include $10.4 billion of capital investment during the next five years, primarily to replace aging coal plants with renewable energy. New legislation in Missouri should allow Evergy to securitize the remaining book value of coal plants as they retire in the coming years, improving cash flow and reducing equity needs.
Kansas, which represents about half of Evergy’s total asset base, has a more constructive regulatory environment than Missouri, and Kansas regulators have supported renewable energy investment for many years. Evergy also benefits from favorable federal regulation for its electric transmission assets, which could top 15% of its asset base in the coming years. Evergy is one of the few utilities that does not have any investments outside its rate-regulated businesses. Management said it remains committed to directing all of Evergy’s investment to its regulated utilities at least through 2025. Senior leadership has extensive experience at companies with unregulated power businesses, and we wouldn’t be surprised if Evergy directs some capital investment outside of the utilities, perhaps with a partner.
Evergy raised the dividend 6% during the two years following the merger and raised it 7% for 2022 to $2.29 per share annualized. Morningstar analyst expect the dividend to grow in line with earnings for the foreseeable future
Constructive Regulatory Outcome in Missouri Would Be Big Boost for Evergy
Morningstar analyst are reaffirming to $60 fair value estimate for Evergy after reviewing the company’s two Missouri customer rate filings and incorporating them into their forecast.
Morningstar analyst expect regulators to approve rate increases less than Evergy’s $43.9 million request in its Missouri Metro jurisdiction and $27.7 million request in its Missouri West jurisdiction. However, Morningstar analyst think these are reasonable requests and expect constructive outcomes that support 6% average annual earnings growth rate through 2024. If regulators were to approve the full rate increase, it would raise Morningstar analyst growth rate to 7%, the middle of management’s 6%-8% target.
Financial Strength
Evergy had an equity-heavy balance sheet following the all-stock combination of Westar and Great Plains. However, the company has repurchased over 45 million shares following the merger for about $2.6 billion. Morningstar analyst don’t expect any additional share repurchases due to an acceleration of the company’s investment plan. Morningstar analyst expect debt/total capital to remain in the mid-50s. Following the merger, the board raised the dividend 6.3% in late 2019, 5.9% in late 2020, and 7% in late 2021. Management has targeted a payout ratio of 60%-70% of operating earnings, in line with most other regulated utilities. Morningstar analyst forecast 6% dividend increases for at least the next four years, in line with earnings growth.
Bulls Say
- Morningstar analyst expect annual dividend increases to average 6% over the next four years.
- A material net operating loss position is likely to shield Evergy from paying significant cash taxes until 2023.
- Recent legislation has improved the regulatory framework in Missouri, home to one third of Evergy’s rate base. This should reduce regulatory lag
Company Profile
Evergy is a regulated electric utility serving eastern Kansas and western Missouri. Major operating subsidiaries include Evergy Metro, Evergy Kansas Central, Evergy Missouri West, and Evergy Transmission Co. The utility has a combined rate base of approximately $15 billion, about half in Kansas and the rest split between Missouri and federal jurisdiction. Evergy is one of the largest wind energy suppliers in the U.S.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
It is understood Sensata Technologies is a differentiated supplier of sensors and electrical protection. The firm has oriented itself to benefit from secular trends toward electrification, efficiency, and connectivity, and it is supposed that investors will see meaningful topand bottom-line growth as upon an automotive market recovery.
Despite the cyclical nature of the automotive and heavy vehicle markets, electric vehicles (EVs) and stricter emissions regulations provide Sensata the opportunity to sell into new sockets, which has allowed the firm to outpace underlying vehicle production growth by about 4% historically. It is alleged such outperformance is achievable over the next 10 years, given the expectations for a fleet mix shift toward EVs and Sensata’s growing addressable content in higher-voltage vehicles.
It is observed, Sensata’s ability to grow its dollar content in vehicles demonstrates intangible assets in sensor design, as it works closely with OEMs and Tier 1 suppliers to build its products into new sockets. It is also believed the mission-critical nature of the systems into which Sensata sells gives rise to switching costs at customers, leading to an average relationship length of 31 years with its top 10 customers. As a result of switching costs and intangible assets, it is held Sensata benefits from a narrow economic moat and will earn excess returns on invested capital for the next 10 years.
Over the next decade, it is anticipated Sensata to use bolt-on M&A to supplement sensor content growth in its core markets. Sensata established a leading share in the tire pressure monitoring system (TPMS) market in 2014 with its acquisition of Schrader, and it is implicit acquisitions will play a key role in allowing the firm to enter new, higher-growth, adjacent markets. Recent acquisitions of GIGAVAC and Xirgo will allow Sensata to compete in the electric vehicle charging infrastructure and telematics markets, respectively, which is likely to begin to bolster the top line and margins near the end of analyst’s explicit forecast and beyond.
Financial Strength
Sensata Technologies is leveraged, but it is held that its balance sheet is in good shape, and that it generates enough cash flow to fulfill all of its obligations comfortably. As of Dec. 31, 2021, the firm carried $4.2 billion in total debt and $1.7 billion cash and equivalents. Sensata closed out 2021 with a net leverage ratio of 2.8 times, which is squarely in management’s target range of 2.5-3.5 times. Over the next few years, it is probable Sensata to stay in its target leverage range as it continues to engage in supplemental M&A. Between 2023 and 2026, Sensata has $2.1 billion total in debt maturing, with $400 million-$700 million coming due each year. It is projected the firm to easily fulfill its obligations with its cash balance and cash flow—it is foreseen over $700 million in average annual free cash flow over Analyst’s explicit forecast. Finally, it is noted that Sensata has a variable cost structure that allows it to keep a relatively healthy balance sheet during difficult demand environments. Even with weak end markets in 2019 and 2020 that shrunk the top line, Sensata’s free cash flow generation held steady, with its free cash flow conversion jumping to 130% in 2020.
Bulls Say’s
- Sensata should benefit from secular trends toward electrification, efficiency, and connectivity to continue outgrowing global vehicle production.
- Fleet management is an opportunity for Sensata to expand its margins and create a recurring base of revenue in an emerging, high-growth market.
- Sensata has some of the sensor industry’s highest margins and strong free cash flow conversion, providing it with capital to invest in organic and inorganic growth.
Company Profile
Sensata Technologies is a leading supplier of sensors for transportation and industrial applications. Sensata sells a bevy of pressure, temperature, force, and position sensors into the automotive, heavy vehicle, industrial, heating, ventilation, and cooling (HVAC), and aerospace markets. The majority of the firm’s revenue comes from the automotive market, where it holds the largest market share for tire pressure monitoring systems.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
Cushman & Wakefield underwent a major business transformation after the combination of DTZ, Cassidy Turley and Cushman & Wakefield in 2015. The combination of these three firms expanded its geographical presence, added incremental capabilities, and gave the company adequate scale to effectively compete with its larger rivals CBRE and JLL for lucrative global contracts from multinational clients. The company has benefitted from the secular trends in the real estate services industry and has been able to grow strongly through organic growth opportunities, strategic in-fill acquisitions and by actively recruiting fee earning teams. M&A is a strategic pillar for the company in its quest to become a single source provider for the full spectrum of real estate related services on a global footprint and the company has demonstrated a track record of successful integrations and broker onboarding.
The GAAP operating margin of the company has been negatively impacted by restructuring & integration related charges, and various efficiency related projects over the past several years. However, it is alleged that these investments were necessary for the firm and the enhanced scale and efficiency improvements from the prior initiatives will contribute positively toward margin accretion on a midcycle basis in the upcoming years. It is also anticipated non-recurring changes to normalize, resulting in positive earnings and cash flow generation that can be reinvested into the business.
The leasing and capital market segments which make up about 38% of fee revenue provides full-service brokerage and has a higher cyclicality in revenue. By contrast, the property & facility management segment, which make up about 54% of fee revenue, represents the outsourcing business and provides a contractual stream of revenue. The valuation & other segment contributes 8% of fee revenue and provides solutions related to workplace strategy, digitization, valuation and so on. The company should be able to post healthy growth rates as it continues to take share from its smaller competitors and benefits from rising capital flows into real estate, increasing corporate outsourcing and growth in urbanization.
Financial Strength
Cushman & Wakefield has somewhat concerned financial health. The company had a total debt of $3.2 billion and net debt of $2.0 billion as of the end of third quarter in 2021. This resulted in a net debt/adjusted EBITDA ratio of about 2.8 times. Management has repeatedly stated that debt reduction is not a strategic priority, and they are comfortable with a debt/adjusted EBITDA ratio in mid 2s. Debt maturity timeline is not an issue for the company as most of the debt matures after 2024. The company is also in a comfortable position with respect to liquidity with a total liquidity of $2.2 billion consisting of cash and a revolving credit facility. This gives the firm enough flexibility to fund its operations, pursue M&A and invest in organic growth opportunities. The company has used leverage for in-fill acquisitions in the past to achieve adequate scale and capabilities to compete with its larger rivals. The company is currently using approximately 40% debt to fund its capital structure, which makes it significantly more leveraged than its larger competitors CBRE and JLL, which are currently using approximately 5.0% debt. Additionally, it has not been able to consistently generate positive operating cash flows since 2015 because of the significant investments in integration and efficiency related projects. This makes the company vulnerable to macroeconomic downturns and the cyclicality in the commercial real estate. It is likely the cash flow generation capacity of the business to improve in the upcoming years as it achieves scale and the nonrecurring expenses normalize. Although it isn’t viewed, the company’s high level of debt as an immediate liquidity concern, a prolonged downturn could call its underlying financial stability into question. While it is anticipated the firm to benefit from various secular tailwinds, it is alleged that management should err on the side of caution and refrain from taking too much incremental debt, given the cyclical nature of the industry.
Bulls Say’s
- As one of the largest of only a few truly international one-stop shops, Cushman & Wakefield is poised to continue taking share from competitors in a growing industry that increasingly rewards scale.
- The trend of corporate outsourcing represents a significant opportunity and area of growth for Cushman & Wakefield.
- Increased scale and the recent efficiency initiatives should help the company achieve material margin accretion in the upcoming years.
Company Profile
Cushman & Wakefield is the third largest commercial real estate services firm in the world with a global headquarters in Chicago. The firm provides various real estate-related services to owners, occupiers and investors. These include brokerage services for leasing and capital markets sales, as well as advisory services such valuation, project management, and facilities management.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook:
In early 2020, Ingersoll Rand spun off its industrial segment, which immediately merged with Gardner Denver. This new entity assumed the Ingersoll Rand name and stock ticker. Legacy Ingersoll Rand’s climate segment was renamed Trane Technologies. It has been viewed legacy Ingersoll Rand’s climate business as more attractive than its industrial segment because the former has generally been more profitable and less cyclical.
Trane Technologies is a leading supplier of climate control products and services; it is a dominant player in commercial and residential heating, ventilating, and air conditioning systems (approximately 80% of sales) with its Trane and American Standard brands, as well as in transportation refrigeration (20% of sales) with its Thermo King brand. The leading HVAC manufacturers have all embraced a pure-play model. Johnson Controls sold its automotive battery business and Carrier spun off from United Technologies. Lennox is already a pure-play climate control company, although it has rid itself of some underperforming domestic and foreign refrigeration businesses.
Financial Strength:
Trane Technologies has a sound balance sheet, and its consistent free cash flow generation supports its debt service obligations, capital expenditure requirements, and dividend, while also providing financial flexibility for opportunistic share repurchases and acquisitions. Trane Technologies ended its fourth-quarter 2021 with $4.8 billion of outstanding debt and $2.2 billion of cash, which equates to a net debt/2021 adjusted EBITDA ratio of about 1.1. Besides its 4.25% senior notes ($700 million) due in 2023, the 3.75% senior notes ($545 million) due in 2028, and the 3.8% senior notes ($750 million) due in 2029, no more than $500 million is due in any one fiscal year. In 2021, Trane Technologies generated almost $1.4 billion of free cash flow.
Bulls Say:
- Trane should benefit from secular trends in global urbanization and increased demand for energy efficient building solutions.
- With a company mission to address climate change and energy efficiency challenges with its products and services, Trane Technologies has become a popular ESG play.
- Trane Technologies generates significant aftermarket and replacement sales on its large installed base, which helps damp cyclicality.
Company Profile:
Trane Technologies manufactures and services commercial and residential HVAC systems and transportation refrigeration solutions under its prominent Trane, American Standard, and Thermo King brands. The $14 billion company generates approximately 70% of sales from equipment and 30% from parts and services. While the firm is domiciled in Ireland, North America accounts for over 70% of its revenue.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook:
Carnival remains the largest company in the cruise industry, with nine global brands and 91 ships at 2021 fiscal year-end. The global cruise market has historically been underpenetrated, offering cruise companies a long-term demand opportunity. Additionally, in recent years, the repositioning and deployment of ships to faster-growing and under-represented regions like Asia-Pacific had helped balance the supply in high-capacity regions like the Caribbean and Mediterranean, aiding pricing. However, global travel has waned as a result of COVID-19, which has the potential to spark longer-term secular shifts in consumer behavior, challenging the economic performance of Carnival over an extended horizon.
As consumers have slowly resumed cruising since the summer of 2021 (after a year-plus no-sail halt), it is suspected that the cruise operators will have to continue to reassure passengers of both the safety and value propositions of cruising. On the yield side, it is expected Carnival to see some pricing pressure as future cruise credits continue to be redeemed in 2022, a headwind partially mitigated by the return of capacity via full deployment of the fleet. And on the cost side, higher spend to maintain tighter cleanliness and health protocols should keep expenses inflated. Aggravating profits will be staggered reintroduction of the fleet through the first half of 2022, crimping near-term profitability and ceding previously obtained scale benefits. As of Jan. 13, 2022, 67% of capacity (50 ships) was already deployed and around 96% of the fleet should be sailing by the end of February.
Financial Strength:
Carnival has secured adequate liquidity to survive a slow resumption of domestic cruising, with $9.4 billion in cash and investments at the end of November 2021. This should cover the company’s cash burn rate over the ramp-up, which has run around $500 million or more per month recently due to higher ship start-up costs. The company has raised significant levels of debt since the onset of the pandemic closing fiscal 2021 with $28.5 billion in long-term debt, up from less than $10 billion at the end of 2019. The company has less than $3 billion in short term and $2 billion in long-term debt coming due over the next year versus $33 billion in total debt. The company is focused on reducing debt service as soon as reasonably possible, as evidenced by the refinancing of over $9 billion in debt, which reduced future annual interest by around $400 million per year. It has also actively pursued the extension of maturities, limiting the cash demand on debt service over the near term.
Bulls Say:
- As Carnival deploys its fleet, passenger counts and yields could rise at a faster pace than we currently anticipate if capacity limitations are repealed.
- A more efficient fleet composition (after pruning 19 ships during COVID-19) may help contain fuel spending, benefiting the cost structure to a greater degree than initially expected, once sailings fully resume.
- The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators had capacity for nearly 4 million passengers in 2020, which provides an opportunity for long-term growth with a new consumer.
Company Profile:
Carnival is the largest global cruise company, with 91 ships in its fleet at the end of fiscal 2021, with 98% of its capacity set to be redeployed by May 2022. Its portfolio of brands includes Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Carnival also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival’s brands attracted about 13 million guests in 2019, prior to COVID-19.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
With wide-moat-rated BlackRock crossing the $10 trillion mark in assets under management at the end of 2021, concerns about the firm being too large to grow have emerged again. It seems that this complaint come up when the company had just over $1 trillion in AUM back during the 2008-09 financial crisis, as well as just about every time the firm has passed another trillion-dollar marker during the past decade. While one of our key bear points on BlackRock is that the sheer size and scale of its operations would end up eventually being the biggest impediment to the firm’s longer-term growth, we don’t believe we are quite there yet.
BlackRock is at its core a passive investment shop. Through its iShares exchange-traded fund platform and institutional index fund offerings, the wide-moat firm sources two thirds of its managed assets (and close to half of its annual revenue) from passive products. And unlike many of its competitors, BlackRock is currently generating solid organic growth with its operations, primarily driven by its iShares platform, which is the leading domestic and global provider of ETFs, riding a secular trend toward passively managed products that began more than two decades ago.
Financial Strength
BlackRock has been prudent with its use of debt, with debt/total capital averaging just over 15% annually the past 10 calendar years. The company entered 2022 with $6.6 billion in long-term debt, composed of $750 million of 3.375% notes due May 2022, $1 billion of 3.5% notes due March 2024, EUR 700 million of 1.25% notes due May 2025, and $700 million of 3.2% notes due March 2027, $1 billion of 3.25% notes due April 2029, $1 billion of 2.4% notes due April 2030, and $1.25 billion of 1.9% notes due May 2031. The company also has a $4.4 billion revolving credit facility (which expires in March 2026) but had no outstanding balances at the end of September 2021.
BlackRock has historically returned the bulk of its free cash flow to shareholders via share repurchases and dividends. That said, the firm did spend $693 million on two acquisitions in 2018, $1.3 billion on eFront in 2020, and $1.1 billion for Aperio Group in early 2021, so bolt- on deals look to be part of the mix in the near term. As for share repurchases, BlackRock expects to spend $375 million per quarter on share repurchases during 2022 but will increase its allocation to buybacks if shares trade at a significant discount to intrinsic value. The company spent $1.2 billion on share repurchases during 2021. BlackRock increased its quarterly dividend 18% to $4.88 per share early in 2022.
Bulls Say’s
- BlackRock is the largest asset manager in the world, with $10.010 trillion in AUM at the end of 2021 and clients in more than 100 countries.
- Product diversity and a heavier concentration in the institutional channel have traditionally provided BlackRock with a much more stable set of assets than its peers.
- BlackRock’s well-diversified product mix makes it fairly agnostic to shifts among asset classes and investment strategies, limiting the impact that market swings or withdrawals from individual asset classes or investment styles can have on its AUM.
Company Profile
BlackRock is the largest asset managers in the world, with $10.010 trillion in AUM at the end of 2021. Product mix is fairly diverse, with 53% of the firm’s managed assets in equity strategies, 28% in fixed income, 8% in multi-asset class, 8% in money market funds, and 3% in alternatives. Passive strategies account for around two thirds of long-term AUM, with the company’s iShares ETF platform maintaining a leading market share domestically and on a global basis. Product distribution is weighted more toward institutional clients, which by our calculations account for around 80% of AUM. BlackRock is also geographically diverse, with clients in more than 100 countries and more than one third of managed assets coming from investors domiciled outside the U.S. and Canada.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
Pentair is a pure play water company manufacturing a wide range of sustainable water solutions, including energy-efficient swimming pool pumps, filtration solutions, as well as commercial and industrial pumps. Pentair’s business is organized into two segments: consumer solutions and industrial & flow technologies. Consumer solutions (58% of Pentair’s sales in 2021) concentrates on business-to-consumer sales and includes aquatic systems as well as residential and commercial filtration.
The aquatic systems business, which offers a full line of energy-efficient equipment for residential and commercial swimming pools (including pumps, filters, heaters, and other equipment and accessories), is the crown jewel in Pentair’s portfolio, as it is both its fastest-growing and most profitable business. Industrial & flow technologies (42% of sales in 2021) focuses on business-to-business sales and consists of industrial filtration (including the food and beverage end market), residential irrigation flow, and commercial and infrastructure flow.
Financial Strength
Pentair ended the fourth quarter of 2021 with $894 million of long-term debt while holding $95 million in cash and equivalents. Debt maturities are reasonably well laddered, with only about $88 million maturing in 2022. Furthermore, the company has an additional $764 million available under its revolving credit facility. The company is bound by a debt/EBITDA covenant that requires that the ratio not exceed 3.75 times.
Narrow moat-rated Pentair reported solid fourth-quarter results, as its full-year sales of $3,765 million and adjusted EPS of $3.40 both surpassed our previous estimates ($3,709 million and $3.35, respectively). For full-year 2022, management expects sales growth of 6% to 9% and adjusted EPS in the range of $3.70 to $3.80. After rolling our model forward one year, we’ve modestly bumped our fair value estimate for Pentair to $70 from $69, mostly due to time value of money as well as reversing the implementation of a probability-weighted change in the U. S. statutory tax rate in our model.
Bulls Say’s
- Pentair is a pure play water company poised to benefit from demand for sustainable and energy-efficient water solutions.
- The pool business continues to deliver solid revenue growth, consistent market share gains, and lucrative operating margins.
- Recent acquisitions of Pelican Water and Aquion will bolster Pentair’s portfolio of water solutions in the residential and commercial markets.
Company Profile
Pentair is a global leader in the water treatment industry, with 10,000 employees and a presence in 25 countries. Pentair’s business is organized into two segments: consumer solutions and industrial & flow technologies. The company offers a wide range of water solutions, including energy-efficient swimming pool equipment, filtration solutions, and commercial and industrial pumps. Pentair generated approximately $3.8 billion in revenue and $686 million in adjusted operating income in 2021.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.