Pentair, the pool equipment company, has received an upgrade from UBS, whose analysts believe the pool cycle is nearing its bottom. The firm has upgraded the shares from neutral to buy, and raised the price target to $72 per share from $53, which implies a 24.4% rally from the previous close. Analyst Damian Karas noted that the company is aiming for more than 400 basis points of expansion by 2025, and while UBS only forecast 315 basis points of uplift, the stock is pricing in just over 200 basis points.
Analyst Predicts Rebound in Growth
UBS analyst Karas thinks the pool business is nearing a trough in demand in the third quarter, and is increasingly bullish on a rebound in growth due to the “robust margin inflection” over the last few quarters. He believes a larger inventory destock and lower baseline for business that is now “baked into guidance” will contribute to this growth. Karas also believes that the guided 20% pool volume decline this year is sufficient to de-risk the business, which should shift investor focus to the 2024 demand recovery.
Healthy Margin Uplift Expected
UBS believes that Pentair should see healthy margin uplift from operating initiatives paired with volume growth post-’23, which will further contribute to the company’s positive outlook.
Risks Involved
Potential risks to UBS’s bullish outlook on Pentair include a recessionary scenario and continuing interest rate hikes that limit the cyclical recovery of housing and home sector spending. However, Karas believes that despite these risks, the risk/reward skew is 3:1 to the upside. Pentair shares rose 2% before the bell on Monday and have rallied 28.6% year-to-date.
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