Mueller Water Products (MWA): Buy, Sell, or Hold Post Q1 Earnings?

Mueller Water Products has been treading water for the past six months, recording a small loss of 2.9% while holding steady at $24.54.

Is there a buying opportunity in Mueller Water Products, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Mueller Water Products Not Exciting?

We don't have much confidence in Mueller Water Products. Here are three reasons why we avoid MWA and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

In addition to reported revenue, organic revenue is a useful data point for analyzing Water Infrastructure companies. This metric gives visibility into Mueller Water Products’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Mueller Water Products’s organic revenue averaged 2.9% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Mueller Water Products’s revenue to rise by 4.1%. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

3. Free Cash Flow Margin Stuck in Neutral

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Mueller Water Products’s margin was unchanged over the last five years, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 14%.

Final Judgment

Mueller Water Products isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 19.4× forward P/E (or $24.54 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.

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