Nomura Securities Downgrades Pentair (PNR) to Neutral

Nomura Securities downgraded Pentair (NYSE: PNR) from Buy to Neutral with a price target of $65.00 (from $75.00), saying margin momentum could act as a brake on EPS growth in 2015.

Analyst Jonathan Wright commented, "In the face of disappointing top-line growth, PNR’s ability to expand margins
has been a bright spot. EBIT margins improved by ~200bp in 2013 and are up 160bp in the year to date 2014. Indeed, the ability to fuel EPS growth through self-help initiatives had been one of the key pillars of our Buy thesis.

However, we think that this overall margin growth has masked two divergent trends: 1) a significant reduction in SG&A expense, particularly in the acquired Flow Control businesses, and 2) a weakening in the group’s gross margin as
the company struggles to offset inflation with price / productivity.

A focus on segments and a number of one-off charges have, we think, meant that this issue has been underappreciated so far. But with SG&A savings already below PNR’s 2015 target and comparing favorably to peers, we see a risk that margin momentum slows, which, absent an acceleration in top-line expectations, will likely necessitate downgrades to consensus estimates. Our 2015 and 2016 EPS estimates are both 5% below consensus."

For an analyst ratings summary and ratings history on Pentair click here. For more ratings news on Pentair click here.

Shares of Pentair closed at $64.19 yesterday.

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