J.P. Morgan analyst Stephen Tusa expressed concern about Pentair’s valuation, after its 50% surge year-to-date through Wednesday, Bloomberg reports.
The stock recently traded at $77.06, down 2.5%.
Growth has likely peaked for Pentair’s Aquatic unit, which is largely responsible for Pentair’s stronger-than-expected earnings over the past two years, he said.
The outlook for the company is uncertain, he said.
Last month, Morningstar analyst Krzysztof Smalec raised his fair-value estimate for narrow-moat-rated Pentair to $68 from $64.
That came after the company reported “solid” second-quarter results and raised its guidance for full-year 2021, he said.
“Our fair value adjustment reflects Pentair’s strong performance, an improved near-term outlook, and time value of money.”
Smalec said Pentair earns its narrow moat because of customer switching costs and intangible assets.
“Pentair derives roughly two-thirds of its revenue from after-market service and replacement parts, which are largely tied to its large installed base,” he wrote.
“Because many of the company’s products (including pumps, filters, and control valves) perform mission-critical functions, any product failures could lead to costly outages for customers.
“Thus, quality and reliability are paramount. And customers seldom pursue cost savings by switching to cheaper alternatives, which leads to a loyal customer base.
"We believe the company is well positioned to earn excess economic profits over the next decade.”
Further, “the aquatic systems segment has carved a wide moat, which allows it to generate lucrative mid-20s operating margins,” Smalec said.