|Shares Out. (in M):||157||P/E||75.0x||18.8x|
|Market Cap (in $M):||588||P/FCF||17.0x||6.1x|
|Net Debt (in $M):||568||EBIT||119||172|
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At $3.75, we believe MWA provides a unique risk/reward situation with limited downside (~$2.50) and substantial upside (~$7). Although we do not have a strong view Q/Q on financial performance due to the timing of municipal capital spending, MWA benefits from both cyclical and secular tailwinds of residential/commercial construction and repair/replace water infrastructure, respectively. MWA’s core Mueller Co franchise is remarkably stable with an installed base of >50K municipalities cultivated over 150 years with high switching costs and barriers to entry. There could be further upside potential with better visibility into new residential construction and/or demonstrated organic growth at Valves/Hydrants or Mueller Systems/Echologics. Please see the file with all charts and tables: http://www.scribd.com/doc/100857929/MWA-Memo-July-18
MWA is a leading North American manufacturer and marketer of products and services used in the transmission, distribution, and measurement of drinking water, in water treatment facilities, and residential and commercial construction. MWA estimates ~75% of sales are from #1 market positions in their leading brands with an installed base of 11MM Iron Gate Valves and 3MM Fire Hydrants, and are specified for use in the 100 largest metropolitan areas in the US. Capacity utilization is currently ~50% and there have been no changes to facilities and capacity since peak earnings in FY06 (aside from US Pipe restructurings and divesture).
Catalysts & Opportunities:
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