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Nelson Peltz And Pentair: Could M&A Be On The Horizon?

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Nelson Peltz And Pentair: Could M&A Be On The Horizon?

Shares of Pentair plc. (NYSE: PNR) spiked higher by more than 5 percent Tuesday after Nelson Peltz's Trian Fund Management was reported to have accumulated a 7.24 percent stake and is pushing the company to explore several strategic options such as acquiring rivals to consolidate the space.

In a report published Tuesday, Wedbush analyst David Rose discussed the latest developments, noting that there are three players in the space that could "potentially fit the portfolio."

First is Flowserve Corp (NYSE: FLS), which is trading at a discount to Pentair at 9.8x EBITDA versus Pentair's 12.3x EBITDA multiple. The analyst noted that Flowserve is "one of the better run companies" but an acquisition by Pentair may not provide the same cost cutting valuation creation that it is known for. In addition, Flowserve is "heavily" weighted to Energy which may not provide as much diversification.

Rose continued that an acquisition of Xylem Inc (NYSE: XYL) could result in "a lot" of synergies, but shares are trading at 11.9x EBITDA and would be less accretive with more business lines than just pumps. As such, the analyst stated that this would contradict the notion of simplicity.

Finally, Rose stated that Pentair would find it "fairly easy to acquire" SPX Corporation (NYSE: SPW) with shares trading at 8.7x 2015E EBITDA. In addition, the company is in the process of spinning its flow or pumps business and would "probably be the best fit." In addition, Pentair could have a "more meaningful impact" on the business than it would on Flowserve.

Analyst Ratings And Price Targets

  • Shares of Pentair are Neutral rated with a $65 price target.
  • Shares of Flowserve are Outperform rated with a $71 price target.
  • Shares of SPX are Outperform rated with a $102 price target.
  • Shares of Xylem are Outperform rated with a $39 price target.

Latest Ratings for PNR

DateFirmActionFromTo
Jul 2019MaintainsEqual-Weight
Apr 2019MaintainsMarket PerformMarket Perform
Nov 2018MaintainsOverweightOverweight

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