Watts Water Hits 52-Week High on Increased EMEA Savings - Analyst Blog

On Sep 2 2014, shares of Watts Water Technologies, Inc. (WTS) soared to a new 52-week high of $64.40. The stock pulled back to end the trading session at $63.85 on that day. The stock price appreciation came on the back of upbeat second-quarter earnings.

This North Andover, MA -based manufacturer and seller of various water safety and flow control products has a market cap of $2.24 billion and long-term estimated earnings per share growth rate of 15%.

What's Driving Watts Water Up?

Share price of Watts Water surged following an investor presentation held yesterday. Management expects growth in new residential construction, repair and replace activity, and commercial recovery later in the year to drive sales growth of 6%-8% in the Americas segment, in 2014. Asia-Pacific sales is projected to increase 15% to 20% on the back of continued expansion in the Chinese markets.

Watts Water Technologies initiated a European transformation program in the fourth quarter of 2013. Total annual savings expectation has been updated to $18 million by 2018, with approximately $3.5 million and $10.0 million in annual savings expected in 2014 and 2015, respectively. Cost controls and efficiency gains should continue to result in sustained margin gains in the EMEA section despite lower volumes.

Watts Water's second-quarter 2014 adjusted earnings increased 21% year over year to $0.69 per share, driven by cost savings realized in EMEA, as part of its restructuring and transformation efforts, and reduced foreign currency transaction losses and interest expense. Earnings beat the Zacks Consensus Estimate by a penny, a positive earnings surprise of 1.47%.

After the end of the second quarter, management noted strong order patterns in the Americas and Asia Pacific segments, setting the stage for improved top-line growth and improved margins in the third quarter.

The Zacks Consensus Estimate for 2014 reflects an estimated 20.4% jump to $2.67 from $2.22 earned in 2013. For 2015, the bottom line is expected to increase 21.9% year-over-year to $3.26.

Watts Water currently has a Zacks Rank #3 (Hold). Some better-performing stocks in the sector worth considering include Badger Meter Inc. (BMI), Roper Industries Inc. (ROP) and Woodward, Inc. (WWD). All of these stocks carry a Zacks Rank #2 (Buy).

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