Machinery Stocks

Pentair PLC Valuation – June 2018 $PNR

Company Profile (excerpt from Reuters): Pentair plc, incorporated on November 28, 2013, is a diversified industrial manufacturing company. The Company is engaged in Water Quality Systems business, and Flow and Filtration Solutions business. The Water Quality Systems business designs, manufactures, markets and services water system products and solutions to meet filtration and fluid management challenges in food and beverage, water, swimming pools and aquaculture applications. The Flow and Filtration Solutions business is involved in the entire water, water treatment and wastewater system from filtration, desalination, water supply to water disposal, process and control.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PNR – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,007,764,100 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.65 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 196.27% Pass
6. Moderate PEmg Ratio PEmg < 20 19.12 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.70 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.31
MG Growth Estimate 15.00%
MG Value $88.91
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $33.49
MG Value based on 0% Growth $19.63
Market Implied Growth Rate 5.31%
Current Price $44.16
% of Intrinsic Value 49.67%

Pentair plc. Ordinary Share qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.01 in 2014 to an estimated $2.31 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Pentair plc. Ordinary Share revealed the company was trading above its Graham Number of $37.69. The company pays a dividend of $1.38 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.12, which was below the industry average of 28.31, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.63.

Pentair plc. Ordinary Share performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$10.63
Graham Number $37.69
PEmg 19.12
Current Ratio 2.65
PB Ratio 1.70
Current Dividend $1.38
Dividend Yield 3.13%
Number of Consecutive Years of Dividend Growth 12

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $2,719,000,000
Total Current Liabilities $1,027,500,000
Long-Term Debt $2,673,100,000
Total Assets $9,368,100,000
Intangible Assets $5,916,600,000
Total Liabilities $4,648,400,000
Shares Outstanding (Diluted Average) 181,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.26
Dec2017 $3.63
Dec2016 $2.85
Dec2015 -$0.42
Dec2014 $1.11
Dec2013 $2.62
Dec2012 -$0.84
Dec2011 -$0.08
Dec2010 $1.86
Dec2009 $1.17
Dec2008 $2.31
Dec2007 $2.11
Dec2006 $1.81
Dec2005 $1.80
Dec2004 $1.68
Dec2003 $1.42
Dec2002 $1.31
Dec2001 $0.33
Dec2000 $0.57
Dec1999 $1.17
Dec1998 $1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.31
Dec2017 $2.21
Dec2016 $1.35
Dec2015 $0.56
Dec2014 $1.01
Dec2013 $0.96
Dec2012 $0.38
Dec2011 $1.15
Dec2010 $1.80
Dec2009 $1.79
Dec2008 $2.05
Dec2007 $1.86
Dec2006 $1.70
Dec2005 $1.53
Dec2004 $1.28
Dec2003 $1.04
Dec2002 $0.88

Recommended Reading:

Other ModernGraham posts about the company

Pentair PLC Valuation – March 2017 $PNR
Pentair PLC Valuation – November 2015 Update $PNR
26 Companies in the Spotlight This Week – 11/22/14
Pentair Limited Annual Valuation – 2014 $PNR

Other ModernGraham posts about related companies

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Eaton Corp PLC Valuation – March 2018 $ETN
Fastenal Co Valuation – March 2018 $FAST

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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