Machinery Stocks

Pentair PLC Valuation – March 2019 #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.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PNR – March 2019

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 $7,241,842,352 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.27 Fail
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 760.64% Pass
6. Moderate PEmg Ratio PEmg < 20 17.36 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.00 Fail
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 1.27 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.57 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 $2.43
MG Growth Estimate 15.00%
MG Value $93.71
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $35.29
MG Value based on 0% Growth $20.69
Market Implied Growth Rate 4.43%
Current Price $42.26
% of Intrinsic Value 45.10%

Pentair PLC does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.56 in 2015 to an estimated $2.43 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.43% 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 revealed the company was trading above its Graham Number of $24.39. The company pays a dividend of $1.05 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.36, which was below the industry average of 26.53, 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 $-5.36.

Pentair PLC receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.36
Graham Number $24.39
PEmg 17.36
Current Ratio 1.27
PB Ratio 4.00
Current Dividend $1.05
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,039,400,000
Total Current Liabilities $818,700,000
Long-Term Debt $787,600,000
Total Assets $3,806,500,000
Intangible Assets $2,349,000,000
Total Liabilities $1,970,400,000
Shares Outstanding (Diluted Average) 173,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.50
Dec2018 $1.96
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.43
Dec2018 $2.21
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

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2019
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2018
Pentair PLC Valuation – June 2018 $PNR
Pentair PLC Valuation – March 2017 $PNR
Pentair PLC Valuation – November 2015 Update $PNR

Other ModernGraham posts about related companies

Snap-On Inc Valuation – March 2019 #SNA
W.W. Grainger Inc Valuation – February 2019 $GWW
Xylem Inc Valuation – February 2019 $XYL
Allegion PLC Valuation – February 2019 $ALLE
Arconic Inc Valuation – February 2019 $ARNC
Roper Technologies Inc Valuation – February 2019 $ROP
Rockwell Automation Inc Valuation – February 2019 $ROK
Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top