Pentair Earnings: Continued Margin Expansion Despite Pool Headwinds

Following narrow-moat-rated Pentair’s second-quarter earnings release, we’ve raised our fair value estimate to $70 from $64, driven by our more optimistic midcycle operating margin assumptions. Despite headwinds in the pool segment as well as a challenging macroeconomic environment, Pentair delivered a 230-basis-point year-over-year operating margin expansion in the second quarter, from 19.3% to 21.6%, thanks to higher pricing, productivity, and margin accretion from the Manitowoc acquisition. We are encouraged by Pentair’s margin expansion in recent quarters as the firm’s transformation initiatives have started to bear fruit, with margins improving across all three segments.