UBS bullish on Pentair stock, sees growth potential By

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On Thursday, UBS maintained its Buy rating on Pentair (NYSE:) stock with a steadfast price target of $83.00. The firm’s confidence in Pentair is rooted in the belief that the market has not fully appreciated the company’s ongoing business transformation. UBS anticipates the possibility of a further re-rating of the stock’s multiple.

Pentair’s recent investor day reinforced the company’s commitment to its 2024 guidance and 2025 targets. Additionally, Pentair introduced a three-year target that includes mid-single-digit growth and an EBITA margin improvement of 100 basis points over the 2025 target, aiming for 24%.

The margin expansion is expected to be driven by the second and third waves of business transformation, focusing on sourcing and operational excellence, which could contribute approximately 325 basis points and 200 basis points respectively. Importantly, these improvements are not reliant on pricing changes.

Management at Pentair expressed optimism about the implementation of the 80/20 strategy throughout the company, a process that is just getting underway. While specific numbers were not disclosed, the tone was positive regarding the potential benefits of this strategy.

This approach, along with effective operating execution and strategic capital deployment, is anticipated to support a low double-digit percentage compound annual growth rate in earnings per share.

Pentair’s projected free cash flow suggests that the company could have around $2 billion in capital capacity through the end of 2026. This financial flexibility is expected as the company’s balance sheet deleverages from approximately 2 times to about 0.5 times. The firm’s analysis points to a credible path towards achieving and potentially surpassing initial targets for 2026.

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