Seaport Upgrades Pentair To Buy, Raises Target To $70

The worst margin performance for Pentair plc. Ordinary Share (NYSE: PNR) in the V&C segment is now behind the company, Seaport Global Securities’ Ryan Cassil said in a report. He upgraded the rating for the company from Neutral to Buy, while raising the price target from $59 to $70.

Analyst Ryan Cassil expressed increased confidence in management’s forecast for a 50 percent reduction in decrementals in 2Q, “as volumes increase seasonally and high-cost inventory is turned.” The layoffs over the past 12-18 months are expected to result in ~$10MM of annualized cost savings. Meanwhile run-rate general industrial and downstream spending is likely to have remained stable.

“While we expected Engineered Projects within V&C to remain challenged on the top line, upside to our estimates is likely if short-cycle spending re-accelerates, as we believe pent-up demand exists in the market, but timing remains uncertain,” Cassil wrote.

Technical Solutions

Technical Solutions has become Pentair’s largest segment, contributing 32 percent of sales. The integration of ERICO could result in upside to synergies, with margins already tracking ahead of the legacy Technical Solutions average, the analyst stated.

“As the company focuses on internal improvements, we believe estimated free cash flow of $750MM and $940MM in 2016 and 2017, respectively, will be used to reduce net debt-to-EBITDA to 2.6x ending in 2017, in line with PNR’s historical average range,” Cassil added.