Buy Mueller Water (NYSE: MWA) for 50% Upside While Solving Water Crisis
Buy Mueller Water (NYSE: MWA)
Target: $18
Buy Up To: $13
Option Play: Subscribers wishing to buy options instead can: Buy to open the May 19, 2017 call on Mueller Water (MWA) with a strike price of $12.50 at $0.22 or lower. Symbol (MWA170519C12.5)
Dirty water is a problem. Look no further than the Flint water crisis to see how dilapidated our nation’s plumbing is. Mueller Water is one of the few pure-play public companies solely focused on the diagnosis and treatment of water infrastructure problems.
Mueller Water’s intelligent water technology helps utilities and municipalities actively diagnose, monitor and control the delivery of safe drinking water. The recent Flint crisis has forced municipalities to prioritize water infrastructure improvements. Just this March $350 million was granted to Flint for water system repairs.
The company’s recent sale of its Anvil division shifts it to a pure play on water infrastructure. Anvil’s commodity products were declining and produced minimal profits. Proceeds from the sale will reduce Mueller’s debt from $480 million down to near zero. The drop in interest payments alone will add $0.06-$0.08 to earnings annually.
Backlogged orders for Mueller Systems were up 70% at the end of the December quarter and Echologics, its acoustic diagnostic product, added $5.1 million in new contracts versus $3.7 million last year.
With unique technology, Mueller should continue to grow its systems business in the double digits. The company’s lower growth fire hydrant and valve business produce tremendous profits which help fuel development of new technologies.
Earnings will rise low double digits this year and then accelerate in 2018 with a full year of lower interest payments and increased profitability in Mueller’s technology division.
My target is $18 based on a P/E of 28 on earnings per share of $0.65 in 2018. Look for updates to the company’s backlog on its second quarter earnings call on April 27. Details of the call below:
WHEN: Friday, April 28, 2017 at 9:00 a.m. ET. MWA’s second quarter earnings call.
CALL: The conference call will be webcast live on Mueller Water Products’ website- http://ir.muellerwaterproducts.com/events-and-presentations
What to Listen For: Backlog for Mueller Systems, the technology division, was up 70% at the end of the first quarter. Listen for an update on how those orders are progressing and how long it will be until they are booked. Also, listen for how profitability improvements are progressing for the systems division, which is running at a small loss but expected to be break even by year end.
Stock Talk
Skippie2000
After getting burned on your Hees rec, I think I will stay away from your short term calls. Why don’t you recommend longer call periods when you say you expect good things for the company into 2018?
Linda McDonough
You can certainly buy the longer term calls. These are timed to capture the upside with the company’s earning release next week. I’ve had subscribers ask for exposure to lower priced calls also and found these to be well priced. I do think you could do well with longer term ones though. Let me know if you do that and how it works out.
Best,
Linda
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John
Linda
Little confused on the mwa option. If your looking at $18.00 target why the 12.50 strike price ? Thanks
John
Linda McDonough
John,
When I’m choosing the option series there’s always a balance between the price of the option, the expiration and the strike. I’ve found choosing a strike significantly above the current price not very successful, especially when the stock is not very volatile.
Many subs decide they prefer a different strike or a different expiration date. You can see in the prior stock talk note that a sub would rather a longer term option. The option series that I recommend is by no means the only one that will work out.
Best,
Linda
John
Linda ,
I understand . Thanks
Jihn
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John
Linda
Still haven’t had order for MWA filled . I’m at .10 . Any suggestions ? Thanks
Johnn
Linda McDonough
John,
The May 12.5 calls traded quite a bit between $0.22-.24 yesterday but haven’t traded near $0.10 as far as I can see. They were up today because the stock was up a bit. They traded at $0.33-35 today so if you put a limit at that price you should be filled.
Best,
Linda
DanB
Linda,
I bought the calls at. 24 and sold them at .34 – nice return in less than 24hours!
I also bought shares at 11.87. I’ll hold those for the long term.
Thanks
Dan
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John
Linda
Still getting the hang of this . When you say .22 or lower I thought you drop by a .05 until order is filled. I’ll read upon it.
Thanks
John
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