On Jan 4, 2016, Zacks Investment Research downgraded Pentair plc PNR to a Zacks Rank #4 (Sell).
Why the Downgrade?
Pentair’s third-quarter 2015 adjusted earnings declined 13% year over year to 97 cents per share. The company affirmed fourth-quarter 2015 adjusted earnings per share in the range of $1.03–$1.05, down 10–12% year over year. Pentair expects core sales to decline 5% and total sales to decline approximately 3%, inclusive of foreign exchange headwinds and the ERICO acquisition.
The company also maintained its 2015 adjusted earnings per share outlook within $3.84–$3.86, which represents a decrease of 9% from 2014 adjusted earnings of $4.23. Adjusted operating income is projected to be down 12% and adjusted operating margin to contract 50 basis points to 15.6%.
Most of its energy-related businesses remained challenged in 2015, given the slump in oil prices. Sales in the Energy vertical (27% of Pentair’s sales) are expected to decline in 2015. Oil & gas trends (approximately 19% of sales) remain volatile, particularly in upstream applications where management sees continued project delays and incremental pressure from declining oil prices. Moreover, demand trends in Power (5% of sales) and Mining (3% of sales) remain weak. The Industrial vertical (representing roughly 29% of sales) will continue to be affected by a slowdown in global capital spending.
In the Valve & Control segment, core orders declined 12% in the third quarter as they were down in three of the four sub-verticals, with the exception of Power. Currency translation continues to have a negative impact and the backlog at the the end of the third quarter was down 3%. The company does not expect orders to have improved during 2015 owing to the global economic uncertainty as customers continued to re-evaluate existing pipeline projects. The company expects sales in the Valves & Controls segment to be down approximately 14% in 2015.
Stocks to Consider
Some better-ranked stocks in the industrial products sector include Lakeland Industries Inc. LAKE, Energy Recovery, Inc. ERII and Heritage-Crystal Clean, Inc HCCI. All three stocks carry a Zacks Rank #2 (Buy).
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PENTAIR PLC (PNR): Free Stock Analysis Report
ENERGY RECOVERY (ERII): Free Stock Analysis Report
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