Pentair Plc – Value Analysis (NYSE:PNR) : December 5, 2016

Capitalcube gives Pentair Plc a score of 16.

Our analysis is based on comparing Pentair Plc with the following peers – Xylem Inc., IDEX Corporation, Crane Co. and Dover Corporation (XYL-US, IEX-US, CR-US and DOV-US).

Investment Outlook

Pentair Plc has a fundamental score of 16 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • Pentair plc trades at a lower Price/Book multiple (2.45) than its peer median (3.33).
  • PNR-US‘s EBITDA-based price multiple implies around peer median growth. The market does not seem to expect much improvement in the company’s below peer median EBITDA-based returns.
  • PNR-US‘s relatively low net margins and poor asset turns suggest a problematic operating strategy.
  • Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
  • PNR-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While PNR-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a Price/EBITDA ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • PNR-US has additional debt capacity.

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Leverage & Liquidity

PNR-US has additional debt capacity.

  • With debt at a reasonable 27.72% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 19.25%), and a well-cushioned interest coverage level of 5.94x, PNR-US has the capacity to borrow some more.
  • All 4 peers for the company have an outstanding debt balance.

PNR-US has moved to a relatively high liquidity from an Some Capacity profile at the recent year-end.

  • PNR-US‘s interest coverage is downward trending and is below (but within one standard deviation of) its five-year average interest coverage of 8.28x.
  • The decrease in its interest coverage to 5.94x from 7.82x (in 2015) was also accompanied by a decrease in its peer median during this period to 7.58x from 8.64x.
  • Interest coverage fell 0.82 points relative to peers.
  • PNR-US‘s debt-EV has declined 7.12 percentage points from last year’s high but remains above its five-year average debt-EV of 23.42.
  • Like the interest coverage trend, the decrease in its debt-EV (to 27.72% from 34.83%) was also accompanied by a decrease in its peer median during this period (to 19.25% from 23.25%).
  • Relative to peers, debt-EV fell 3.12 percentage points. Unlike the peer median, it is also above the 25% leverage benchmark.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Xylem Inc. 12.15 2.49 7.58 40.18
IDEX Corporation 13.76 2.81 9.19 37.1
Crane Co. 19.25 2.35 10.81 24.97
Dover Corporation 22.26 1.45 5.86 28.22
Pentair plc 27.72 2.13 5.94 16.92
Peer Median 19.25 2.35 7.58 28.22
Best In Class 12.15 2.81 10.81 40.18

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Company Profile

Pentair Plc operates as global water, fluid, thermal management, and equipment protection partner with industry leading products, services, and solutions. It operates through its segments: Valves and Controls, Process Technologies, Flow Technologies and Technical Solutions. The Valves and Controls segment designs, manufactures, markets and services valves, fittings, automation and controls and actuators. The Process Technologies segment designs, manufactures, markets and services innovative water system products and solutions to meet filtration, separation and fluid process management challenges in food and beverage, water, wastewater, swimming pools and aquaculture applications. The Flow Technologies segment designs, manufactures and markets products and services designed for the transfer and flow of clean water, wastewater and a variety of industrial applications. The Technical Solutions segment designs, manufactures, markets and services products that guard and protect some of the worlds sensitive electronics and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications. The company was founded on September 28, 2012 and is headquartered in Manchester, the United Kingdom.

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