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Watts Water Technologies WTS is witnessing strong momentum this year with its shares having gained 22.5% year to date compared with the sub-industry’s growth of 20.3%. Headquartered in North Andover, MA, WTS designs, manufactures and sells plumbing, heating and water quality solutions for residential, industrial and commercial applications.
The increase in share price is driven by the company’s healthy financial performance. The top line is benefiting from strengthening momentum in the Asia-Pacific region and healthy growth in the Americas. In the last reported quarter, sales from Americas increased 3% year over year to $323 million while Asia-Pacific, the Middle East and Africa reported 4% improvement in sales to $20 million. Management raised its adjusted operating margin outlook for 2023, driven by strong first-quarter results.
WTS is likely to benefit from continued investment in smart and connected-enabled products, which are likely to provide it with further differentiation in the marketplace. It is focused on enhancing organic growth, driving margin expansion and reinvesting in productivity initiatives.
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Frequent product launches are added positives. In 2022, the company launched more than 20 new products. Synergies from acquisitions of Enware Australia, Backflow Direct LLC and Australian Valve Group Pty Ltd also bode well.
Watts Water’s revenues are expected to increase 1.7% and 2.8% on a year-over-year basis in 2023 and 2024, respectively. The bottom line is anticipated to rise 2% and 1.8% on a year-over-year basis in 2023 and 2024, respectively. The Zacks Consensus Estimate for 2023 and 2024 earnings per share is pegged at $7.27 and $7.40, up 4.9% and 3.1%, respectively, in the past 60 days.
WTS outpaced estimates in all the trailing four quarters, delivering an earnings surprise of 16.3%, on average. The long-term EPS growth rate is anticipated to be 8% for this Zacks Rank #3 (Hold) company.
However, rising material and labor expenses are likely to weigh on the company’s performance in the near term. Also, escalating interest rates and lending tightening on new construction are concerns. Also, an increase in internal investment is likely to impact margin expansion.
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Some better-ranked stocks in the broader technology space are Dropbox DBX, Badger Meter BMI and Blackbaud BLKB. Dropbox presently sports a Zacks Rank #1 (Strong Buy) while Badger Meter and Blackbaud carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.