Watts Water Soars 40.8% in 12 Months: Is More Upside Left in the Stock?

Watts Water Technologies, Inc.’s (WTS) shares have surged 40.8% in the past year, outperforming its Instruments Control industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 4.8%, 22.2% and 15.5%, respectively.

WTS also topped several of its peers, including Sensata Technologies (ST), Badger Meter, Inc. (BMI) and Thermon (THR). ST, BMI and THR declined 15.6%, 11.6% and 15.6%, respectively, during the same time frame. Closing at $276.9 as of last day’s trading session (Aug. 29, 2025), WTS stock is currently trading below its 52-week high of $285.9.

North Andover, MA-based Watts Water designs, manufactures and sells various water safety and flow control products to promote safety, energy efficiency and water conservation for commercial and residential buildings. It classifies its wide range of products under four universal product lines – residential & commercial flow control products, which include products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves.

WTS Banks on Smart Buys & Rock-Solid Balance Sheet

Watts Water posted record second-quarter sales, operating income and EPS, with organic sales up 6% driven by favorable pricing, demand pull-forward and higher volume. Adjusted operating margin expanded to 21.6%, supported by strong balance sheet flexibility. Operationally, the company is managing tariff impacts, has completed the EasyWater acquisition to strengthen its Water Quality portfolio and is progressing well with integrations of Bradley, Josam and I-CON. Nexa deployment is scaling across target verticals. WTS raised its full-year outlook, citing strong first-half performance, price gains, data center momentum and EasyWater integration benefits. Headwinds include tariff uncertainty and global GDP pressures.

Management continues to address key customer needs through innovative solutions. Smart Strainers help prevent costly property damage by sending real-time alerts for proactive maintenance. Nexa, an intelligent water management platform, enables smart monitoring and conservation in commercial buildings. Powers IntelliStation 2 boosts energy efficiency by optimizing water heating with advanced programmable temperature control. It has a strong foothold across commercial, residential and light industrial water applications.

The company is well aligned with long-term secular trends through a diversified portfolio, while maintaining a sharp focus on innovation and digital strategies to drive profitable growth. Supported by a strong balance sheet and disciplined capital deployment, Watts generates consistent cash flow and balanced allocation. Its resilient business model, backed by a large installed base and recurring repair and replacement demand, continues to perform across economic cycles.

Watts Water continues to drive top-line growth through strategic acquisitions and synergies. In June 2025, it acquired EasyWater, a provider of advanced water conditioning and filtration solutions, enhancing its water quality portfolio. In January, the company acquired I-CON Systems, a leader in plumbing control solutions for the corrections market, expanding its digital offerings and institutional reach. Together, I-CON and EasyWater contributed $7 million in incremental second-quarter sales, adding 1% to reported growth, with EasyWater expected to deliver roughly $5 million in 2025 sales and be EPS-neutral after purchase accounting.

These deals follow the acquisitions of Josam (2024) and Bradley (2023), both of which broadened sales networks and created cross-selling opportunities. Integration of Bradley, Josam, I-CON and EasyWater is progressing ahead of expectations, supported by 80/20 strategic initiatives in the Americas and Europe.

Furthermore, Watts Water delivered strong cash flow in 2024, with operating cash flow rising to $361.1 million and free cash flow to $331.7 million, driven by higher earnings, improved working capital and acquisitions. In the first half of 2025, the company generated $125 million in operating cash and $105.1 million in free cash flow, while repurchasing 37,000 shares for $7.9 million. With $137 million still available under its buyback program, WTS remains on track to achieve free cash flow conversion at or above 100% of net income for the year.

WTS’ Nexa Rolls Out Strong, Scaling Smarter

Nexa Intelligent Water Management is gaining momentum as a key growth driver for Watts Water. By combining advanced sensing, smart equipment and software with the company’s plumbing expertise, Nexa provides commercial buildings, including hotels, campuses and multifamily properties, with powerful insights for monitoring, issue detection and efficiency. Successful installations have demonstrated measurable savings, rapid payback and recurring revenue through subscriptions and replacement components. By expanding adoption across hospitality, multifamily and property management sectors, WTS is positioning Nexa as a long-term growth engine that strengthens both service-based revenues and core equipment sales.

Boosted by a strong first half, pricing gains, favorable FX, data center demand and the EasyWater acquisition in the Americas segment, the company lifted its full-year sales and margin outlook. For 2025, the company now expects reported sales growth to be between 2% and 5% (the previous guided range was from a decline of 2% to an increase of 3%). It now expects organic sales to be flat to increase 3% (the previous guided range was from a decline of 3% to an increase of 2%).

Adjusted EBITDA margin is now forecasted to be between 20.7% and 21.3%, indicating an improvement of 60 bps to 120 bps, up 30 bps at the midpoint from prior guidance. Adjusted operating margin is predicted to be between 18.2% and 18.8%, implying a 50-110 bps improvement year over year, up 50 bps at the midpoint from prior guidance.

Woes for WTS

Watts Water faces ongoing softness in Europe, with second-quarter sales down 3% reported and 8% organically, driven by weaker heating OEM demand despite favorable pricing. The company expects Europe sales to decline 6–9% in the third quarter and 5–9% for 2025.

Watts Water further anticipates approximately $40 million in tariff impacts in 2025, creating margin pressure amid ongoing trade uncertainty. To mitigate these effects, the company is pursuing price increases, global sourcing initiatives and accelerated onshoring. Broader risks remain, including potential tariff changes and a projected global GDP slowdown, which could affect its repair and replacement business, which represents about 60% of total revenues.

Intense competition both domestically and abroad, often against rivals with deeper financial, marketing and operational strengths, heightens the risk of losing market share, being forced into price cuts and seeing margin erosion. Success hinges on delivering quality, brand strength, compliance and innovation in smart, sustainable solutions, areas where stronger competitors could outpace the company.

WTS Valuation

From a valuation standpoint, WTS appears to be trading at a premium relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 26.98 forward earnings, higher than 18.66 for the industry.

In comparison, ST, BMI and THR are trading at multiples of 9.27, 36.25 and 13.5, respectively.

End-Note

Watts Water is delivering stronger-than-expected results, achieving record sales, operating income and EPS, driven by the Americas region’s price realization, favorable price/cost dynamics and volume leverage. With solid execution, a broad U.S. presence and a resilient global supply chain, the company is well-positioned to sustain momentum and successfully navigate the current trade environment. On the back of a strong first half and solid third quarter outlook, WTS updated its full-year sales and margin guidance. With a strong balance sheet, the company has the flexibility to invest in M&A, automation, innovation and digital initiatives while returning capital through buybacks and dividends, driving long-term value despite a challenging environment.

With a Zacks Rank #1 (Strong Buy) at present, the stock seems to be a good investment bet. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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