Analysis: Pentair (PNR)

Can Pentair's Strong Momentum Endure?

Water Sector LTP initiated coverage of Pentair plc (NYSE:PNR) on 7/17/25 when the price was $106.70. On this date of publication, 7/26/27, the price is $103.08.

PNR’s price has risen dramatically in the past three years, from $39.62 on 10/21/22 to $103.16 today. I don’t think it can maintain that sort of momentum in this climate of disruptions to trade relationships and general economic incompetence in the Trump White House. But PNR is positioned to compete and continue to grow in a sector with increasing global demand for its products and services, especially in emerging markets.

The Company

PNR has headquarters for tax purposes in London UK, with operational headquarters in Minnesota USA. PNR operates in three segments: Flow, Water Solutions, and Pool.

• The Flow segment designs, manufactures, and markets fluid treatment and pump products and systems for industrial and agricultural applications; this represents about 37% of consolidated net sales.

• The Water Solutions segment offers commercial and residential water treatment products and systems, including filtration products, representing about 28% of sales.

• The Pool segment provides a broad range of commercial and residential pool equipment and accessories, representing 35%.

PNR’s most important competitor is Xylem (NYSE:XYL), a company based in Washington, DC, with almost twice the market cap of PNR. Froddy’s issued a BUY recommendation for XYL on 7/10/25.

Quantities

Because the Pool segment is a seasonal business, yearly financial results are more meaningful than quarterly, so we will focus on the 2024 year-end results – except to point out that second-quarter 2025 revenue (reported a few days ago) was up 2% year-over-year.

In 2024, PNR earned $425 million in net income out of $4.08 billion in revenue. Earnings have increased yearly since at least 2018, although TTM net income growth is in the bottom 25% of its industry, according to FinanceCharts.com. Gross profit has increased each year in the past three years, and 2024 gross margin beat both the industry and the S&P 500 index. But return on equity has just equaled the industry average and trailed the S&P 500.

Cash flow and debt levels are healthy (debt to equity is about 50%). Price to earnings is about 28, which is higher than ideal but well under Xylem’s PE ratio of 35. Dividends have increased consistently, but at a low dividend yield of about 1%.

More than 95% of PNR shares is owned by institutions, while less than 1% is owned by insiders. Short percent of float is about 2%. Overall financial condition: durable.

Headwinds

I’ll focus on two kinds of headwinds: goodwill and tariffs. PNR acquired G&F Manufacturing, which manufactures and services pool heat pumps, for $116 million cash in December 2024. As a result, at year-end 2024, goodwill and intangible assets were $4,320.4 million and represented approximately 67% of PNR’s total assets. “Future impairment of our goodwill and intangible assets could have a material adverse effect on our results of operations” – that’s the boilerplate statement in PNR’s annual report.

Regarding the uncertainty around tariffs, CEO John Stauch said this in the 4/22/25 earnings call: “We have taken several steps to mitigate tariffs….We have…a two-step distribution model representing about 75% of our sales that generally enables us to pass along price increases when we are not unique in dealing with inflationary pressures.” Other advantages include “a high recurring revenue base generated from a majority of non-discretionary replacement products, a global supply chain with reduced reliance on China, a strong U.S. manufacturing footprint, [and] strong free cash flow….”

Tailwinds

The first of three tailwinds that I will discuss is PNR’s competitive position, which is built around financial stability, consistent returns to investors, and a broad global footprint. Although 75% of PNR revenue came from North America in 2024, the company serves customers in 150 countries and maintains regional offices in Shanghai, Dubai, and Australia as well as Western Europe and the USA. PNR has over 100 manufacturing facilities across six continents.

“We compete based on technical expertise, intellectual property, reputation for quality and reliability, timeliness of delivery, previous installation history, contractual terms, service offerings, customer experience and service, and price,” PNR says in its annual report.

The second tailwind I want to discuss is robust research and development. In a rapidly growing and changing industry, especially where “sustainability imperatives” shape the competitive landscape, innovation is a key to continued success. PNR spent $94 million on R&D in 2024, which was 2.3% of revenue. (By comparison, Xylem spent 2.7% on R&D, which amounted to $230 million).

Political Risk Minimized

The third tailwind is minimal political risk. In my opinion, maintaining a neutral, non-partisan position has become essential for long-term success in a chaotic political climate punctuated by a massively corrupt and mercurial leader. (See "Freedman's Doctrine on Political Risk" here.) First of all, PNR does not significantly depend on federal government contracts. The company was awarded less than $12,000 in government contracts in 2024, according to my research.

PNR has not been compelled to capitulate or make undue concessions to the Trump kakistocracy. According to OpenSecrets.org, Pentair made no donations to political candidates or parties in the 2024 election cycle. PNR does pay membership dues to the National Association of Manufacturers, which lately has given slightly more money to Republicans than to Democrats.

PNR’s policy on corporate political contributions is fairly soft: such contributions are “generally prohibited” without prior approval from the CEO, CFO, and general counsel.

Recommendation: BUY

If you were to invest in only one water technology stock, I’d pick Xylem. But if you want to bet on the sector, which is a smart move, I recommend that you also BUY Pentair. Today on 7/26/26, the stock closed at $103.08.

© Copyright 2025 David M. Freedman