WATTS WATER TECHNOLOGIES INC (WTS): what the price assumes
In the published model solve dated 2026-Q2, anchored at $366.34, WATTS WATER TECHNOLOGIES INC (WTS) is priced for today's economics sustained for ~5.8 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-28.
Generated: 2026-08-30 · Source: https://boothcheck.com/report/WTS
Headline
| Field | Value |
|---|---|
| Ticker | WTS |
| Company | WATTS WATER TECHNOLOGIES INC |
| Current price | $366.34/sh |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin (value-band context) | 15.2% |
| Operating margin today | 19.1% |
| Margin compression (value-band) | -3.9pp |
| Must persist for | 5.8y |
| Multiple paid | 24x operating income |
The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.
Solve inputs: computed at a 10.1% cost of capital; growth searched up to the 25% self-funding ceiling.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | +1.34σ |
| cohort percentile (of 225 peers) | 63 |
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 | 2.82x | 5 | expensive |
| Earnings | 3.05x | 5 | expensive |
| Relative | 1.36x | 5 | expensive |
| Growth | 0.96x | 3 | justifies |
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 9.2%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $330.00 | 1.11x | yes | FCF base $0.4B, growth 17% (input: historical growth), terminal g 4.0%, WACC 9.2%, 6yr projection |
| DCF Exit Multiple | Growth | $435.03 | 0.84x | yes | Exit EV/EBITDA: 19.0x / 21.0x / 23.0x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $277.93 | 1.32x | yes | P/E 22.19x (blended: static sector reference 18x + trailing (TTM) 32x), scenarios: 18.2x / 22.2x / 26.1x (bear / base = reference held flat / bull), EV/EBITDA 14.71x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $123.86 | 2.96x | yes | BV/sh $65.36, ROE (TTM) 17.5%, ke 9.3% |
| Two-Stage Excess Return | Asset | $168.31 | 2.18x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $381.10 | 0.96x | yes | Rev $2.7B, growth 17% (input: historical growth; tapered), Terminal P/S: 3.8x / 4.6x / 5.4x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $270.10 | 1.36x | yes | EPS $11.45, growth 24% (input: historical EPS growth), PEG=1.36 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $105.91 | 3.46x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.39B × (1−23%) / WACC 9.2% → EPV (no growth) |
| Residual Income | Asset | $168.25 | 2.18x | yes | BV $65.36 + 5yr PV of (ROE (TTM) 17.5% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $129.76 | 2.82x | yes | √(22.5 × EPS $11.45 × BVPS $65.36) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $212.02 | 1.73x | yes | EBITDA $0.57B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $119.92 | 3.05x | yes | FCF $349.4M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $111.78 | 3.28x | yes | SBC-adj FCF $0.32B (FCF $0.35B − SBC $0.03B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $369.45 | 0.99x | yes | EPS $11.45 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $43.27 | 8.47x | yes | BV $65.36 × (ROIC 6.1% / WACC 9.2%) |
| P/Sales Sector | Relative | $199.80 | 1.83x | yes | Revenue $2.68B × sector P/S 2.5x |
| PEG Fair Value | Relative | $405.16 | 0.90x | yes | EPS $11.45 × (PEG 1.5 × growth 23.6% (input: historical EPS growth)) → PE 35.4x |
| Earnings Yield | Earnings | $123.78 | 2.96x | yes | EPS $11.45 / 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 | $237.3m |
| Net debt / NOPAT (after-tax) | -0.60x (net cash) |
| Net debt / operating income (pre-tax) | -0.46x (net cash) |
| Interest coverage | 50.2x |
| Share count CAGR (buyback) | -0.1% |
| 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.)
- FY2025 10-K: …2025-01-01 2025-12-31 0001524472 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001524472 us-gaap:NoncontrollingInterestMember 2025-01-01 2025-12-31 0001524472 us-gaap:AdditionalPaidInCapitalMember 2025-01-01 2025-12-31 0001524472 us-gaap:TreasuryStockCommonMember 2025-01-01 2025-12-31…
- FY2025 10-K: …2022-12-31 0001524472 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001524472 us-gaap:TreasuryStockCommonMember 2022-12-31 0001524472 us-gaap:NoncontrollingInterestMember 2022-12-31 0001524472 us-gaap:RetainedEarningsMember 2023-01-01 2023-12-31 0001524472…
- PNR (Pentair plc)
- FY2025 10-K: …unrestricted cash and cash equivalents in excess of $ 5.0 million but not to exceed $ 250.0 million) to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization and non-cash share-based compensation expense ("EBITDA") on the last day of…
- FY2025 10-K: …exceed 3.75 to 1.00 (or, at PFSA's election and subject to certain conditions, 4.25 to 1.00 for four testing periods in connection with certain material acquisitions) (the "Leverage Ratio") and (ii) the ratio of our EBITDA to our consolidated interest expense, for the same period to be less than 3.00 to 1.00 as of…
- MWA (MUELLER WATER PRODUCTS, INC.)
- FY2025 10-K: 5.9 million during 2025, 2024 and 2023, respectively. 6 Table of Contents Index to Financial Statements Regulatory and Environmental Matters Our operations are subject to numerous federal, state and local laws and regulations, both within and outside the United States, in areas such as: competition, government…
- FY2025 10-K: …manufacturing facility operated by U.S. Pipe that was in the vicinity of a Superfund site located in North Birmingham, Alabama. Under the terms of the acquisition agreement relating to our sale of U.S. Pipe, we agreed to indemnify the purchaser for certain environmental liabilities, including those arising out of the…
- ZWS (ZURN ELKAY WATER SOLUTIONS CORPORATION)
- FY2025 10-K: …sheets. In November 2024, the FASB issued Accounting Standards Update 2024-03 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses" ("ASU 2024-03"), which is intended to improve disclosures about a public business entity's expenses,…
- FY2025 10-K: …stock available for purchase under the ESPP is 2,000,000 shares, subject to adjustment in the event of a change in capitalization. During the years ended December 31, 2025 and December 31, 2024, the Company issued 70,943 and 44,436 shares of common stock related to the ESPP, respectively. As of December 31, 2025,…
- CR (CRANE COMPANY)
- FY2025 10-K: …April 3, 2023. President and Chief Operating Officer from 2013 through 2014. Executive Vice President and Chief Operating Officer from 2011 to 2013. 62 2004 Alejandro A. Alcala (a) Executive Vice President and Chief Operating Officer Executive Vice President, Chief Operating Officer since December 2024. Executive…
- FY2025 10-K: …area remediation resulting in us recording a charge of $ 49.0 million, extending the accrued costs through 2022. Following the 2014 ROD amendment, we continued our remediation activities and explored an alternative strategy to accelerate remediation of the site. During the fourth quarter of 2019, we received…
- SXI (STANDEX INTERNATIONAL CORP/DE/)
- FY2025 10-K: …and current known facts, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate (i) any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position or (ii)…
- FY2025 10-K: Omnibus Incentive Plan, as Amended and Restated* 14-A 9/06/2024 (e ) Standex Deferred Compensation Plan for highly compensated employees filed as Item 5.02.* 8-K 1/31/2008 (f) Third Amended and Restated Credit Agreement Dated February 2, 2023 by and among Standex International Corporation, Citizens Bank, N.A.; Bank of…
- SPXC (SPX TECHNOLOGIES, INC.)
- FY2025 10-K: …annual impairment analyses of indefinite-lived intangible assets, we determined that the implied value of ASPEQ's trademarks approximated their carrying value. If ASPEQ is unable to achieve its current revenue forecast, or there is a change in assumptions used in ASPEQ's analysis (e.g., projected revenues, royalty…
- FY2025 10-K: …we project cash flows for a period of 5 to 10 years. Under the market approaches, we used multiples of earnings before interest, taxes, depreciation and amortization or revenues based on the market information of comparable companies. 62 Accrued Expenses - We make estimates and judgments in establishing accruals as…
- NVT (nVent Electric plc)
- FY2025 10-K: …McKesson Corporation from 1996 - 2000 and with Northern States Power Company (n/k/a Xcel Energy Inc.) from 1992 - 1996. Aravind Padmanabhan 57 Executive Vice President and Chief Technology Officer since 2019; Mr. Padmanabhan was the Vice President and Chief Technology Officer of the Honeywell Connected Worker unit of…
- FY2025 10-K: …us-gaap:LineOfCreditMember us-gaap:SeniorNotesMember 2025-12-31 0001720635 nvt:A2024TermLoanFacilityMember us-gaap:LineOfCreditMember us-gaap:SeniorNotesMember 2024-12-31 0001720635 nvt:A2025TermLoanFacilityMember us-gaap:LineOfCreditMember us-gaap:SeniorNotesMember 2025-12-31 0001720635…
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.