Will Mueller Water Products (MWA) Stock Keep Riding the Growth Wave?

It’s hard to imagine a resource more necessary or ubiquitous than water. Yet despite its abundance, there’s a lot of elbow grease and hard work that goes into making it readily accessible for consumption or usage.

Mueller Water Products Inc (NYSE: MWA) ensures everything keeps flowing smoothly from the tiniest of valves to large, complex leak detection systems. This $ 3.6 billion company has been in business for 168 years — but like most providers of infrastructure components, it hasn’t necessarily spent a lot of time in the spotlight.

However, this isn’t your typical conservative defense play, although it does rank highly in that regard. Mueller’s business model is based on what is fundamentally a non-discretionary category, one where demand is constant and steady. On top of that, the well-documented state of water infrastructure in the United States, which is long overdue for replacements, can easily serve to provide a bullish catalyst going forward.

Here’s why it’s worth watching: MWA stock has plenty of growth prospects. First, let’s backtrack — with a Zen Rating of A, it belongs to a class of equities that have beaten the wider market by providing an average annual return of 32.52% since the turn of the millennium.

Over the course of 2024, Mueller Water has provided a return that is hair above twice that average — at 65.13%. 

The company’s last earnings call, held in November, showed signs of promising growth — but missed analyst estimates when it came to earnings. 

This might have well been a fluke (or, dare we say, an instance of analysts being too optimistic) — the three quarters preceding it all saw earnings beats (39.13%, 100%, and 44.44%) — in any case, the business has outperformed competitors and peers, so long-term growth prospects are still intact.

As a result of that miss, the price of MWA stock dipped from a yearly high of $25.97 to $22.86 at the time of writing.

In case you’re not quite familiar with our Zen Ratings system, the highest possible rating, A, is only given to the top 5% of stocks. MWA belongs to an even more select category — our proprietary quant system, which takes into account 115 factors, ranks in the top 1% of stocks.

To get a better idea as to why, we need to dig into Mueller Water’s Component Grade ratings. Right off the bat, you’ll notice that there aren’t any particular weaknesses at play here. Don’t let the C in front of those Momentum and Sentiment ratings fool you — even though they’re the lowest-rated Component Grades, MWA still ranks in the 74th and 71st percentile in those categories, respectively.

That said, let’s move on to unequivocal strengths — in this case, the stock’s Safety and Financials Component Grades. Mueller Water is in the top 8% of stocks we track in these categories — simply put, there’s a strong balance sheet here, and the stock has been on an uptrend since September of 2022.

Over the course of last year, the company has expanded margins from 6.7% to 8.8%. Compared to five years ago, Mueller Water is significantly less leveraged, as the debt to equity (D/E) ratio has decreased from 1.26 to 1.02.

Although the company’s price-to-earnings (P/E) ratio is a hair over the wider market average, once expected growth is factored in, the overall valuation remains quite attractive, with a price-to-earnings growth (PEG) ratio of 0.66. 

The century-and-a-half-old business’s earnings are expected to grow at a rate of 58.55% annually — a mark, pun intended, blows the industry average of 23.35% out of the water.

While it isn’t exactly a jaw-dropping sum (but it isn’t spare change, either), a member of the company’s board, Brian Healy, recently invested $24,890 in MWA stock, so there is also a degree of insider confidence at work, which is always a promising sign.

Mueller Water will hold its next earnings call tomorrow. Barring a major upset that would shake up the long-term outlook or cause a rapid surge in price, the stock merits further consideration from defensively-minded investors.

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