Canaccord Genuity Morning Coffee on Pentair (PNR) and Tyco International (TYC): Friends with Benefits
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Price: $63.78 -2.76%
Rating Summary:
17 Buy, 15 Hold, 4 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
Rating Summary:
17 Buy, 15 Hold, 4 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
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Canaccord Genuity Morning Coffee on Pentair (NYSE: PNR) and Tyco International (NYSE: TYC): Friends with benefits.
Canaccord Genuity Sustainability Analyst John Quealy believes the proposed combination of Pentair with Tyco’s Flow Control business creates a global leader in flow, filtration and equipment protection solutions (increasing scale and geographic reach). Given a successful track record of transformational moves (i.e. exiting tools business in 2004, growing water technology), Quealy expects Pentair’s management to drive solid share performance over the near to medium term. Looking further out, the company’s 5-7% organic growth targets are more aggressive given ~25% emerging markets exposure and developed world GDP expectations, in Quealy's view. That said, he acknowledges the potential for cross-selling synergies, increased aftermarket sales, further cost reductions and additional M&A resulting from the combination. Net, he finds preliminary earnings power expectations of ~$5.00 in 2015 to be reasonable. The combination of assets looks very complementary, providing nice diversification across geographies and end-markets (reducing exposure to N.A. residential, increasing industrial/energy mix), while adding important scale and reinforcing an already strong balance sheet. Quealy’s preliminary estimates suggest sales of ~$8.2 billion in 2013, driving adjusted EPS of ~$3.36 and EBITDA of ~$1.33 billion once the combination is completed. That said, he remains neutral on shares of Pentair as he believes the stock move following the announcement captures much of the value into the September close.
Canaccord Genuity Sustainability Analyst John Quealy believes the proposed combination of Pentair with Tyco’s Flow Control business creates a global leader in flow, filtration and equipment protection solutions (increasing scale and geographic reach). Given a successful track record of transformational moves (i.e. exiting tools business in 2004, growing water technology), Quealy expects Pentair’s management to drive solid share performance over the near to medium term. Looking further out, the company’s 5-7% organic growth targets are more aggressive given ~25% emerging markets exposure and developed world GDP expectations, in Quealy's view. That said, he acknowledges the potential for cross-selling synergies, increased aftermarket sales, further cost reductions and additional M&A resulting from the combination. Net, he finds preliminary earnings power expectations of ~$5.00 in 2015 to be reasonable. The combination of assets looks very complementary, providing nice diversification across geographies and end-markets (reducing exposure to N.A. residential, increasing industrial/energy mix), while adding important scale and reinforcing an already strong balance sheet. Quealy’s preliminary estimates suggest sales of ~$8.2 billion in 2013, driving adjusted EPS of ~$3.36 and EBITDA of ~$1.33 billion once the combination is completed. That said, he remains neutral on shares of Pentair as he believes the stock move following the announcement captures much of the value into the September close.
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