WATTS WATER TECHNOLOGIES INC (WTS): what the price requires
At today's price, WATTS WATER TECHNOLOGIES INC (WTS) is priced for today's economics sustained for ~6.2 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/WTS
Headline
| Field | Value |
|---|---|
| Ticker | WTS |
| Company | WATTS WATER TECHNOLOGIES INC |
| Current price | $348.37/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 15.7% |
| Operating margin today | 18.8% |
| Margin compression implied | -3.1pp |
| Must persist for | 6.2y |
| Multiple paid | 25x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 10.2% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.7 years.
How unusual the bet is: elevated
| Reference | Value |
|---|---|
| vs own history | +1.34σ |
| cohort percentile (of 225 peers) | 59 |
| sustained it ~6.2 years at this level | 25% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.81x | 5 | expensive |
| Earnings | 3.24x | 5 | expensive |
| Relative | 1.33x | 5 | expensive |
| Growth | 1.03x | 3 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $270.09 | 1.29x | yes | FCF base $0.3B, growth 14% (input: historical growth), terminal g 4.0%, WACC 9.1%, 6yr projection |
| DCF Exit Multiple | Growth | $403.10 | 0.86x | yes | Exit EV/EBITDA: 18.8x / 20.8x / 22.8x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $261.93 | 1.33x | yes | P/E 22.16x (blended: static sector reference 18x + trailing (TTM) 32x), scenarios: 18.2x / 22.2x / 26.1x (bear / base = reference held flat / bull), EV/EBITDA 14.65x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $118.24 | 2.95x | yes | BV/sh $62.58, ROE (TTM) 17.5%, ke 9.3% |
| Two-Stage Excess Return | Asset | $160.44 | 2.17x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $338.51 | 1.03x | yes | Rev $2.6B, growth 14% (input: historical growth; tapered), Terminal P/S: 3.7x / 4.6x / 5.4x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $274.46 | 1.27x | yes | EPS $10.93, growth 25% (input: historical EPS growth), PEG=1.27 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $98.82 | 3.53x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.38B × (1−24%) / WACC 9.1% → EPV (no growth) |
| Residual Income | Asset | $160.48 | 2.17x | yes | BV $62.58 + 5yr PV of (ROE (TTM) 17.5% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $124.05 | 2.81x | yes | √(22.5 × EPS $10.93 × BVPS $62.58) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $202.98 | 1.72x | yes | EBITDA $0.55B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $107.68 | 3.24x | yes | FCF $317.3M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $100.09 | 3.48x | yes | SBC-adj FCF $0.29B (FCF $0.32B − SBC $0.02B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $352.67 | 0.99x | yes | EPS $10.93 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $36.07 | 9.66x | yes | BV $62.58 × (ROIC 5.3% / WACC 9.1%) |
| P/Sales Sector | Relative | $190.88 | 1.83x | yes | Revenue $2.56B × sector P/S 2.5x |
| PEG Fair Value | Relative | $409.88 | 0.85x | yes | EPS $10.93 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $118.16 | 2.95x | yes | EPS $10.93 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $174.3m |
| Net debt / NOPAT (after-tax) | -0.49x (net cash) |
| Net debt / operating income (pre-tax) | -0.37x (net cash) |
| Interest coverage | 43.7x |
| Share count CAGR (buyback) | -0.2% |
| Burning cash | no |
Bullet Takeaways
The book-value models miss what Watts Water actually is. The simple excess-return model lands near $118 and the earnings-power value near $99 against a $344 price, because they cannot see the brand and specification moat in a plumbing-products business that earns a 19%-plus operating margin.
The growth is real and accelerating. Q1 2026 set a record with sales of $677 million, up 21% reported and 12% organic, and adjusted operating margin expanded 110 basis points to 20.1% even after absorbing tariff costs.
At $344 the price works out to about 24x operating income, implying growth held near the self-funding ceiling for roughly six years. The static models say expensive; only the growth-DCF reaches the price. The bet is durable compounding the asset frames cannot price.
Bull Case
What the traditional valuation models miss is the difference between a plumbing-parts maker and a specified-component franchise. On book value Watts looks unremarkable: book value per share is about $63, and the models anchored to it, the simple excess-return model at $118 and the Graham number at $124, land far below the $344 price. But those models cannot see why the business earns a return on equity near 17.5% and an operating margin above 19%. Watts sells valves, backflow preventers, drainage systems, and water-quality products that get specified into building codes and engineering plans, and once a product is designed into a code-compliant system, it is sticky. The filing frames the strategy around three durable themes: safety and regulation, energy efficiency, and water conservation, which it describes as a platform to increase earnings (FY2025 10-K, accession 0001104659-26-018541). Those are secular tailwinds, not cyclical ones.
The recent results show the model working. Q1 2026 was a record: sales of $677 million, up 21% reported and 12% organic, with the Americas, two-thirds of the business, up 16% organically. Adjusted operating margin expanded 110 basis points to 20.1%, and adjusted EBITDA margin reached 22.3%, with management attributing the gain to price, volume, and productivity that more than offset tariff costs, inflation, and acquisition dilution. That is pricing power in action: the company raised price faster than its costs rose. The drainage and water-reuse line, including engineered rainwater-harvesting solutions, is a growing piece of the mix tied directly to the water-conservation theme (FY2025 10-K, accession 0001104659-26-018541).
The balance sheet gives the durability premium a real foundation. Watts holds net cash of about $174 million, carries essentially no net debt, and runs interest coverage near 46x, so the entire enterprise value is equity value in a high-return business. It funds product development, digital solutions, and bolt-on acquisitions that added roughly $130 million of incremental sales, while data-center demand provides a newer growth vector. Management maintained full-year guidance of 8% to 12% reported sales growth and a roughly 19% operating margin. Analysts have moved targets higher, with Stifel at a Buy and a target up to $379, reflecting the same recognition that the static models understate a compounding specification franchise.
Bear Case
The valuation models do not agree, and the bear case is that the conservative ones are the honest read. The earnings-power value lands near $99, the free-cash-flow yield near $108, and the simple excess-return model near $118, all a fraction of the $344 price (June 28, 2026), while only the growth-DCF and the most optimistic peer-multiple scenarios reach it. When the cash-flow and asset-anchored methods cluster near a third of the price and only the growth-dependent methods get there, the price is borrowing heavily from a future that has to materialize. The inversion quantifies it: at about 24x operating income, the price assumes growth held near the 25% self-funding ceiling for roughly six years, and historically only about 24% of comparable fast-growers sustained that pace that long. The recent organic growth of 12% is healthy but well below the ceiling rate the price embeds.
The growth is also geographically lopsided in a way that flatters the headline. The strong Americas number, up 16% organic, carried the quarter, while Europe grew just 1% organically and faces near-term headwinds from product rationalization, and APMEA was up only 3% organic. A company whose organic growth concentrates in one region is more exposed if that region cools, and US construction and renovation demand is rate-sensitive. The filing warns that the company encounters intense competition in all areas of its business and must invest continually to remain competitive (FY2025 10-K, accession 0001104659-26-018541), against larger water peers like Xylem.
The macro backdrop adds a specific, dated threat: tariffs and deglobalization. Watts absorbed tariff costs in the recent quarter through pricing, but a sustained tariff regime raises input costs and can suppress end-market demand, and the filing flags geopolitical disruptions to its supply chain and ability to fulfill orders (FY2025 10-K, accession 0001104659-26-018541). If a tariff-driven slowdown turns into a modest industrial recession, the pricing power that drove the margin expansion gets tested, and a stock priced for six years of ceiling-rate growth has a long way to fall toward the $160 to $234 the reverse-DCF band implies. Some analysts already argue the growth prospects are fully priced in.
Valuation
The model spread is wide and that is the central fact. Against the $343.88 quote, the earnings-power value lands near $99, the free-cash-flow yield near $108, the simple excess-return model near $118, and the Graham number near $124. The peer P/E model lands near $260, the DCF perpetual-growth model near $270, and the blended X-ray estimate near $265. Only the DCF exit-multiple model and the discounted-future-market-cap model reach the price. So the asset, earnings-power, and most peer-multiple frames call the stock richly valued; the price is a bet on durable compounding the static frames cannot capture.
The inversion measures the bet. At today's level the market pays about 24x company-wide operating income, which the model translates into operating growth held near the 25% self-funding ceiling for about six years, discounted at a 10.3% cost of capital, where each percentage point of cost moves the implied horizon about two years. The near-term growth rate is within what the company has recently delivered; the stretch is sustaining it for six years, which only about 24% of comparable fast-growers managed.
The honest read is a quality, net-cash, high-margin specification franchise trading at a price that the asset models cannot justify and only the growth models can. The premium is earned by the secular safety, efficiency, and conservation tailwinds and the demonstrated pricing power; the question is whether six years of near-ceiling growth is realistic given Europe's softness and a tariff-driven demand risk. The gap between the static models and the price is the margin a buyer is underwriting against a disappointment.
Catalysts
The Q1 2026 report was the recent catalyst and a strong one: record sales of $677 million, up 21% reported and 12% organic, with adjusted operating margin expanding 110 basis points to 20.1% despite tariff costs. Management maintained full-year guidance of 8% to 12% reported sales growth and a roughly 19% operating margin. The next earnings report is the key test of whether organic growth holds in the Americas and whether Europe stabilizes after its product-rationalization headwind, since the headline depends on the strong region carrying the soft ones.
Data-center demand and acquisitions are the catalysts to watch for upside. Management cited data-center end-market demand as a growth driver, and bolt-on deals have already added roughly $130 million of incremental sales, so continued M&A and data-center wins would extend the runway. Analyst sentiment has improved, with Stifel raising its target to $379 and a Buy rating, and an average target near $340. The chief risks to the timeline are a tariff-driven slowdown in construction and industrial demand, continued European softness, and the simple fact that a price built on six years of near-ceiling growth leaves little room for a soft quarter. With net cash and no dividend pressure, the company has the flexibility to keep investing through a downturn, but the valuation is the constraint, not the balance sheet.
Sources: StockTitan: Record Q1 2026 for Watts Water, 21% sales growth; Investing.com: Watts Water beats Q1 2026 forecasts; Simply Wall St: WTS valuation after upgrades and Q1 beat; Public.com: WTS analyst forecast; Seeking Alpha: WTS growth prospects already priced in.
Peer Cohorts (Per Segment, With Filing Citations)
APMEA (reported)
- XYL (Xylem Inc.)
- (no filing in the citation store)
- PNR (Pentair plc)
- (no filing in the citation store)
- MWA (MUELLER WATER PRODUCTS, INC.)
- (no filing in the citation store)
- ZWS (ZURN ELKAY WATER SOLUTIONS CORPORATION)
- (no filing in the citation store)
- CR (CRANE COMPANY)
- (no filing in the citation store)
- SXI (STANDEX INTERNATIONAL CORP/DE/)
- (no filing in the citation store)
- SPXC (SPX TECHNOLOGIES, INC.)
- (no filing in the citation store)
- NVT (nVent Electric plc)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.