On Wednesday, Seaport Global Securities maintained its Neutral rating on shares of Watts Water Technologies (NYSE:WTS), despite the company's third-quarter earnings surpassing expectations due to strong demand in the Americas and profit growth. The firm acknowledged the positive quarterly results, noting a sales and EPS beat, but also pointed out the guidance for a 1-2% decline in organic sales for 2024.
Watts Water Technologies has demonstrated approximately a 6% year-to-date profit increase, even with the projected decrease in organic sales for the year. However, the outlook for 2025 is less certain, with potential challenges arising from weaker residential and commercial construction markets. Analysts at Seaport Global Securities have indicated that further commentary on the 2025 outlook will not be available until the fourth-quarter earnings release.
In light of the Q3 performance, Seaport has adjusted its earnings per share (EPS) estimates for Watts Water Technologies. The new EPS forecast for 2024 has been raised to $8.75, up from the previous estimate of $8.65. For 2025, the EPS estimate has also been increased to $9.01 from $8.90. This revision reflects the improved profits from the Americas in the third quarter, which are expected to contribute to the company's performance in the following year.
Nevertheless, the fourth-quarter EPS estimate for 2024 has been reduced due to a weaker sales outlook, particularly in Europe. Seaport Global Securities concluded that Watts Water Technologies appears to be fairly valued when compared to other companies in the water sector. This assessment is based on the firm's analysis of comparable groups within the industry.
In other recent news, Watts Water Technologies reported mixed results for its third-quarter earnings. The company experienced a 4% decline in organic sales, attributed to the timing of projects and destocking activities.
Despite this setback, Watts Water Technologies maintained a strong adjusted operating margin of 17.1% and reported a robust year-to-date free cash flow of $204 million. The company is also preparing for strategic mergers and acquisitions and potential cost optimization efforts.
In addition, Watts Water Technologies announced the potential closure of a manufacturing plant in France. These are among the recent developments at the company. As part of the company's future plans, the launch of Nexa, a SaaS water management solution, is expected to generate ongoing subscriptions. The company also announced the retirement of CFO Shashank Patel, effective March 15, 2025.
InvestingPro Insights
Watts Water Technologies' recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at $6.66 billion, reflecting its significant presence in the water technology sector. Despite Seaport Global Securities' cautious stance, WTS has demonstrated solid financial performance with a revenue of $2.26 billion over the last twelve months as of Q3 2024, representing a growth of 12.36%.
InvestingPro Tips highlight WTS's financial stability and shareholder-friendly policies. The company "holds more cash than debt on its balance sheet," which provides a buffer against potential market downturns. Additionally, WTS "has raised its dividend for 12 consecutive years," underscoring its commitment to returning value to shareholders even in challenging times. This is particularly relevant given Seaport's concerns about potential weakness in construction markets.
For investors seeking a deeper understanding of Watts Water Technologies' prospects, InvestingPro offers 11 additional tips, providing a comprehensive view of the company's financial health and market position.
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