Oppenheimer Sees Growth Spurt For Mueller Water Products

is poised for a growth spurt on increasing construction activity and higher municipal budgets for water infrastructure, according to an analyst. The water distribution equipment company's share price is highly correlated to U.S. housing starts data, according to Oppenheimer's James Giannakouros, who launched coverage on the company with a Outperform rating and $12 target. Mueller fell sharply in February on a quarterly earnings miss and remains down more than 2 percent for the year-to-date. Shares closed Thursday at $9.97, up $0.11. Giannakouros expects housing starts will grow in the double digits over the near- to mid-term, driving Mueller's share price higher. Mueller has roughly a 40 percent share of the market for valves used in water distribution and about a 50 percent share for fire hydrants. Water utility rates are increasing about about 4 percent annually, which should fortify demand from municipalities upgrading their infrastructure, Ginnakouros said. Estimates of required nationwide spending to maintain adequate water supplies over the next couple of decades vary widely from $250 billion to nearly $1 trillion, Ginnakouros said. Regardless of the number, "it provides a very favorable backdrop" for the stock, according to Ginnakouros. The company has cut its debt by $1 billion in recent years, partly through the $100 million sale in 2012 of its U.S. Pipe unit as well as a refinancing completed in November 2014. One potential downside: The company's Anvil unit, which accounted for 34 percent of 2014 revenue, counts as a key customer the oil and gas industry. Although commercial construction drives Anvil's revenue growth, its widest margins come from products for the energy sector.