2024-01-29 17:25:49 ET
Summary
- Mueller Water is a small-cap water stock with strong competitive advantages, poised to capitalize on the pent-up demand for water infrastructure upgrades driven by decades of underinvestment in this sector.
- The company is facing temporary manufacturing challenges associated with ongoing investment initiatives, which is obscuring its underlying profitability potential.
- Prior to undergoing operational upgrades, Mueller Water enjoyed margins of 20%. However, current manufacturing disruptions have temporarily reduced margins to 15%.
- Once these challenges are resolved, margins are expected to rebound to pre-investment levels, potentially propelling the stock price from $14 to $20.
- Activist investors could push for a sale if operational improvements fail to materialize.
Investment Thesis
Mueller Water (MWA) is a high-quality water infrastructure company with strong moats. The company has invested heavily in modernizing its facilities, which has led to temporary manufacturing issues and lower margins. EBITDA Margins were 20% before the initiatives and are now 15%. As these operational issues are resolved, margins should return to their pre-investment levels of approximately 20%, if not higher. The departure of the CEO and the appointment of activist investors to the board suggest a renewed focus on shareholder value.
business
Mueller Water plays a crucial role in ensuring that water reaches our homes in an efficient and uncontaminated manner. The company's products are integral components of the water distribution and measurement systems that span from treatment plants to our taps....
Read the full article on Seeking Alpha
For further details see:
Mueller Water: Margins Poised For Rebound As Manufacturing Challenges Fade