UBS says it sees “the sun shining bright from the bottom of the pool” on Pentair . The firm upgraded the pool equipment company’s shares to buy from neutral. UBS also raised its price target to $72 per share from $53, implying a 24.4% rally from Friday’s close. “We upgrade PNR to Buy on the view that the pool cycle is nearing its bottom, and that the company will deliver on margin targets,” analyst Damian Karas wrote in a client note on Monday. “PNR is aiming for > 400bps of expansion by 2025; and while we only forecast 315bps of uplift, the stock is pricing in just ~200bps.” The analyst thinks that the pool business is nearing a trough in demand in the third quarter. He said he’s increasingly bullish on a rebound in growth due to the “robust margin inflection” over the last few quarters, in addition to a larger inventory destock and lower baseline for business that is now “baked into guidance.” “Nearer-term, we see the guided ~20% pool volume decline this year as sufficient to de-risk the business, which should start shifting investor focus to the 2024 demand recovery. PNR should see healthy margin uplift from operating initiatives paired with volume growth post-’23,” Karas said. UBS said potential risks to its bullish outlook on Pentair include a recessionary scenario, and continuing interest rate hikes that limits the cyclical recovery of housing and home sector spending. “Notwithstanding these risks, we see risk/reward skewed 3:1 to the upside,” Karas said. Pentair shares rose 2% Monday before the bell. The stock has rallied 28.6% in 2023. PNR YTD mountain Pentair PLC stock —CNBC’s Michael Bloom contributed to this report.
