Inthe United States, a liter of bottled water can cost up to $3 perbottle, whilea similar volume of tap water costs less than one cent. According to a NRDC study over 12 years ago,U.S. consumers paid between 240 and 10,000 times more per unit volumeforbottled water than for tap water.
(Thereare 119.24 liters in a barrel, whichmeans that a barrel of premium water would cost about $360 or 4.5 timesmorethan oil)
Tomake things even more complicated, bottled water and tap water areregulated bydifferent federal agencies: the Food and Drug Administration (FDA)regulatesbottled water and the Environmental Protection Agency (EPA) overseesthequality of tap water.
Severalstudies have found that the enforcement and monitoring of water qualityis irregularand inconsistent for both tap water and bottled water. But contrary topopular belief,Tap water contamination incidents must be reported promptly to thepublic, whilethe same is not true for bottled water.
Thebottom line is that even though we pay a premium for our drinkingwater,potable water flowing constantly through the pipes in our homes andworkplaceis crucial and highly regulated. Incertain cities it doesn’t taste so bad either.
Atap water renaissance would be wonderful for today’s Bull of theDay Mueller& Co. MWA,but more realistic for its growth are the necessary improvementsto American water infrastructure. It’s atrend that’s not only needed, but demanded by the people.
Wateris essential to our daily lives and it’s a quiet, but very powerfulcommoditythat we tend to take for granted.
Water, water everywhere…
…butgetting it to where it’s needed can be a problem.
Thetruth is that Mueller & Co. MWA is not the company that isfiltering yourwater for drinking or capitalizing on a shift from bottles back to thetap. Their products and services actuallyhelp get the water to our homes, hydrants and business in addition totroubleshooting problems that lie beneath the streets.
Muelleris one of the largest manufacturers of fire hydrants, butterfly valvesand IronGate valves in the U.S. and Canada and offers the broadest product lineofvalves for residential water and gas systems.
Otherproduct offerings include pipe repair products, water meters, tappingmachinesand tools, advanced metering infrastructure (AMI)/automated meterreading (AMR)and leak detection and pipe condition assessment technology andservices.
Thesales of Mueller’s products are heavily influenced by local waterdepartmentspecifications, so they know exactly what they need and fill a specificdemand.
Ascities age and grow, the need for replacement and/or improvement ofthis vitalinfrastructure is necessary. Many ofAmerica’s cities are deficient in this area and it’s something theycannotavoid. In America’s biggest watersystems alone, 30% of pipes are 40 to 80 years old.
Asidefrom improvements, water leaks alone account for millions in losses forStatesand municipalities.
Ecologics,one of Mueller’s divisions allows water companies to accurately detectleaksand assesses the condition of water pipes—without breaking ground—through theuse of their acoustic technology.
EarningsFlow & Insider Action
Back in late April, Mueller announced recordearnings of 5 cents per share, beating the Zacks Consensus estimate for2 centsor 150%. The company more than doubledadjusted operating income to $24.7 million from $11.5 million versusthe samequarter last year and saw a $31.6 million increase in net sales to$283.1million from $251.5 million.
Margins improved andMueller also redeemed$22.5 million principal amount of 8.75% Senior Unsecured Notes,reducing netdebt leverage to 4.0x.
It was their bestquarter since 2008 and sharesresponded appropriately, rocketing almost 35% from where they weretradingbefore the earnings release.
Even with the rise, Inoticed that several insiderswere still buying shares around the $6.88 mark, or slightly above wheretheyare currently trading; usually a bullish sign.
Analysts have alsogotten more bullish afterthe results and have adjusted their target and estimates higher.
Mueller continues tosee shipment volumes of theirvalves, hydrants and brass products increasing. Moreover, net sales of Mueller Co.’s newer technology products andservices more than doubled in the quarter on a year-over-year basisdemonstrating the footing these products and services continue to gainin themarketplace.
Share valuations arecertainly rich at 35times forward earnings, but if Mueller can deliver on their currenttrajectory,that multiple could drop dramatically and make Mueller stock a littlemore easyto swallow.
First off, it’s important to realize thatthis is a volatile stock. Yesterday’s8.75%, no news drop is proof of that. Shares tend tooscillate roughly 4.5% per dayif you are looking to quantify the moves.
The good news is thatthe stock remains in abullish trend and above the 50 and 200 day moving averages of $6.57 and$5.17 respectively.
Share should see adecent bounce as they arewell outside of the lower Bollinger band in the over-sold territory andshouldalso hold the 50 day moving average barring any catastrophic broadmarket news.
In the short term itwouldn’t be unrealistic tosee the stock back in the $7.75 range and higher.
While thefundamentals aren’t perfect, MWA isa Zacks Rank #1 with stable technicals and a cheap absolute shareprice.
For more players inthe “water space,” youcan also checkout AmericanWater Works Co AWK -Zacks Rank #3, ConsolidatedWater Co CWCO – Zacks Rank #2andAmerican Sts Water Co AWR –Zacks Rank #2.
JaredA Levy is one of the most highly sought after traders in the world anda formermember of three major stock exchanges. That is why you will frequentlysee himappear on Fox Business, CNBC and Bloomberg providing his timelyinsights toother investors. He has written and published two tomes, “YourOptions Handbook” and “TheBloomberg Visual Guideto Options”. You can discover more of his insights and recommendations through histwoportfolio recommendation services:
Zacks WhisperTrader- Learn to buystocks likely to have robust earnings BEFORE they report.
Zacks TAZR Trader– Technical Analysis +Zacks Rank. Best of both worlds approach to find timely trades.
FollowJared A Levy on twitter at @jaredalevy
LikeJared A Levy on Facebook