ZURN ELKAY WATER SOLUTIONS CORPORATION (ZWS): what the price requires
At today's price, ZURN ELKAY WATER SOLUTIONS CORPORATION (ZWS) is priced for today's economics sustained for ~7.2 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/ZWS
Headline
| Field | Value |
|---|---|
| Ticker | ZWS |
| Company | ZURN ELKAY WATER SOLUTIONS CORPORATION |
| Current price | $47.07/sh |
| Composition | United States 90% / Canada 9% / Rest of World 1% |
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 | 9.8% |
| Operating margin today | 17.5% |
| Margin compression implied | -7.7pp |
| Must persist for | 7.2y |
| Multiple paid | 27x 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 10.3% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.8 years.
Reconcile: at the x-ray's 9.3% required return this reads ~5.3 years; the models below use their own rates.
How unusual the bet is: elevated
| Reference | Value |
|---|---|
| vs own history | +0.94σ |
| cohort percentile (of 225 peers) | 62 |
| sustained it ~7.2 years at this level | 21% |
| 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 | 2.92x | 5 | expensive |
| Earnings | 2.62x | 5 | expensive |
| Relative | 1.55x | 5 | expensive |
| Growth | 0.78x | 3 | justifies |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.7%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $60.58 | 0.78x | yes | FCF base $0.4B, growth 10% (input: historical growth), terminal g 4.0%, WACC 8.7%, 6yr projection |
| DCF Exit Multiple | Growth | $60.23 | 0.78x | yes | Exit EV/EBITDA: 25.2x / 27.2x / 29.2x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $30.46 | 1.55x | yes | P/E 23.83x (blended: static sector reference 18x + trailing (TTM) 37x), scenarios: 19.7x / 23.8x / 27.9x (bear / base = reference held flat / bull), EV/EBITDA 16.56x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $13.59 | 3.46x | yes | BV/sh $9.47, ROE (TTM) 13.3%, ke 9.3% |
| Two-Stage Excess Return | Asset | $16.14 | 2.92x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $45.92 | 1.03x | yes | Rev $1.7B, growth 10% (input: historical growth; tapered), Terminal P/S: 3.8x / 4.6x / 5.4x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $31.10 | 1.51x | yes | EPS $1.24, growth 25% (input: historical EPS growth), PEG=1.49 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $9.55 | 4.93x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.20B × (1−23%) / WACC 8.7% → EPV (no growth) |
| Residual Income | Asset | $16.68 | 2.82x | yes | BV $9.47 + 5yr PV of (ROE (TTM) 13.3% − Kₑ 9.3%) × BV; BV grows 8.6%/yr |
| Graham Number | Asset | $16.25 | 2.90x | yes | √(22.5 × EPS $1.24 × BVPS $9.47) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $19.85 | 2.37x | yes | EBITDA $0.30B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $20.63 | 2.28x | yes | FCF $349.7M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $17.97 | 2.62x | yes | SBC-adj FCF $0.31B (FCF $0.35B − SBC $0.04B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $40.01 | 1.18x | yes | EPS $1.24 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $3.62 | 13.00x | yes | BV $9.47 × (ROIC 3.3% / WACC 8.7%) |
| P/Sales Sector | Relative | $25.64 | 1.84x | yes | Revenue $1.74B × sector P/S 2.5x |
| PEG Fair Value | Relative | $46.50 | 1.01x | yes | EPS $1.24 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $13.41 | 3.51x | yes | EPS $1.24 / 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 debt | $245.6m |
| Net debt / NOPAT (after-tax) | 1.07x |
| Net debt / operating income (pre-tax) | 0.82x |
| Interest coverage | 10.6x |
| Share count CAGR (dilution) | 7.2% |
| Burning cash | no |
Bullet Takeaways
Zurn Elkay is a mature, profitable maker of water-management products for buildings, not a young grower, and that matters for how to read the price. At about $50 the stock trades near 29 times company-wide operating income, a multiple that prices in years of continued compounding rather than current cash flow.
The execution backs the optimism so far. First-quarter 2026 sales rose 11 percent to $433 million, adjusted EBITDA margin expanded 160 basis points to 26.8 percent, and diluted EPS jumped 46 percent, with the company raising its outlook.
The catch is that nearly every valuation lens except the growth-DCF says the stock is richly valued. The price embeds operating growth holding at a high rate for close to eight years, a durability bet that only about a fifth of comparable companies have historically delivered.
Bull Case
Frame this as a mature compounder, because that is the right lens for the numbers. Zurn Elkay is not a speculative growth story or a deep-value cyclical; it is an established, cash-generative manufacturer of water safety, control, and drinking-water products for the built environment, and at this stage the question is the quality and durability of compounding, not survival or turnaround. On that test the first quarter of 2026 was excellent: net sales rose 11 percent to $433 million with core growth across nearly all categories, adjusted EBITDA rose 18 percent to $116 million as margin expanded 160 basis points to 26.8 percent, operating profit rose about 30 percent, and diluted EPS jumped 46 percent to $0.35. The company beat estimates and raised its outlook, guiding the next quarter to 8 to 9 percent core sales growth and EBITDA margin of 27 to 27.5 percent. That is a business getting both bigger and more profitable at the same time.
The durability the price assumes is rooted in the end market. Demand for the products is primarily driven by new institutional and commercial building construction and by the retrofit of existing structures to make them more water and energy efficient (FY2025 10-K, accession 0001628280-26-006372). Retrofit and code-driven replacement give the business a recurring, less cyclical layer underneath new construction, and the filing notes the industry's specification-driven end market, where products written into building specifications are difficult for a contractor to swap out (same filing). That specification lock-in is the moat: it is why Zurn Elkay can expand margin while growing, and why the company expects to grow faster than the broader waterworks and commercial-construction markets.
Management is compounding value per share on top of the operating gains. The company generated $43 million of free cash flow in the quarter and repurchased $50 million of stock at roughly $47 per share, retiring shares below the current price. The growth-DCF models, the only frame designed to value durable compounding, land at or above the price, with the discounted-cash-flow reads in the low $60s. The bull case is that the static valuation frames structurally cannot price a moat, and that Zurn Elkay's specification-driven, margin-expanding water franchise is exactly the kind of business that earns a premium the simple multiples will always call expensive.
Bear Case
State the uncomfortable truth plainly: at this price the multiples are paying for compounding that has not happened yet. Almost every valuation lens except the most growth-optimistic says Zurn Elkay is richly valued. The asset-based, earnings-power, and peer-multiple models all land well below the $50 price (June 28, 2026), several of them in the teens to low $30s, and only the growth-DCF reaches today's quote. The price embeds operating growth held near its self-funding ceiling for about eight years, and only roughly a fifth of comparable fast-growers have sustained that pace that long. The model labels the priced-in assumption elevated, above what fundamentals comfortably support, which is a polite way of saying the stock is a bet on durability rather than a claim grounded in current earnings.
The end-market exposure is the crack in the durability story. The company itself says demand is primarily driven by new institutional and commercial building construction and by retrofit activity (FY2025 10-K, accession 0001628280-26-006372). Nonresidential construction is cyclical and rate-sensitive, and a slowdown in commercial and institutional building, the kind a higher-for-longer rate environment or a weaker economy produces, would hit the new-construction half of demand directly. The retrofit layer cushions but does not eliminate that cyclicality, and a business priced at 29 times operating income has little room to absorb a down-cycle in its core market without the multiple compressing hard.
The quality of the recent growth also deserves scrutiny. Part of the margin expansion and EPS leverage comes from integration synergies and cost discipline following the Zurn-Elkay combination, and synergy-driven margin gains eventually run out, leaving organic volume and price to carry growth. The buyback supports EPS but is being done at roughly 29 times operating income, an expensive price to retire stock, so it is returning cash at a rich multiple rather than at a bargain. If core sales growth fades toward the low single digits as construction cools and synergies lap, the only model that justified the price loses its footing, and the stock reprices toward the cluster of conservative fair values that sit far below it.
Valuation
Zurn Elkay is the textbook case of a quality compounder priced ahead of every static frame. At about $50 the market pays roughly 29 times company-wide operating income, which inverts into operating growth held near its self-funding ceiling for about eight years. The near-term growth rate is within what the company has recently delivered; the demanding part is the duration, and only about a fifth of comparable fast-growers have sustained such growth for that long, so the model flags the assumption as elevated.
The family split is stark and informative. The growth-DCF models, which are built to value durable compounding, land at or above the price, in the low $60s, while the asset-based, earnings-power, and peer-multiple families all land well below it, several in the teens to low $30s. That is not a contradiction; it is the signature of a moat. Static models value a business as if its current economics are commodity-like, so they will always call a specification-driven, margin-expanding franchise expensive. The real question is whether the moat is durable enough to make the growth-DCF the right frame.
The practical read is a high-quality business whose price requires the durability bet to pay off. The recent results, 11 percent sales growth, 160 basis points of margin expansion, and a raised outlook, are exactly what that bet needs, and the specification-driven, retrofit-supported demand base makes the durability plausible. But there is little valuation cushion: if nonresidential construction cools or synergy-driven margin gains fade, the price has to lean entirely on the one optimistic family, and the gap down to the conservative cluster is large.
Catalysts
The catalysts are the quarterly evidence on whether the compounding holds. First-quarter 2026 set a high bar: sales up 11 percent to $433 million, adjusted EBITDA up 18 percent to $116 million with margin up 160 basis points to 26.8 percent, operating profit up about 30 percent, diluted EPS up 46 percent to $0.35, and a raised outlook guiding the next quarter to 8 to 9 percent core sales growth and 27 to 27.5 percent EBITDA margin. Watch core sales growth and margin expansion against that guide, since the price assumes years of sustained high growth, and watch free cash flow, which was $43 million in the quarter.
The risk catalysts are the construction cycle and the durability of margin gains. Any softening in new institutional and commercial building activity, the primary demand driver, would pressure organic growth, so nonresidential construction indicators and order trends are the leading signals. The pace of further margin expansion matters too: as post-combination synergies lap, the question is whether organic volume, price, and mix can keep lifting margins. Capital allocation is the catalyst management controls, with the company repurchasing $50 million of stock at about $47 in the quarter; continued buybacks signal confidence but are being made at a rich multiple.
Sources: Zurn Elkay Q1 2026 results, sales $433 million up 11 percent, adjusted EBITDA $116 million, margin 26.8 percent up 160 basis points, operating profit up 29.5 percent, diluted EPS $0.35 up 45.8 percent, $43 million free cash flow, $50 million buyback at about $47, raised Q2 guidance (SEC Form 8-K, April 2026; StockTitan, Alphastreet, StocksToTrade earnings coverage); Zurn Elkay FY2025 10-K on construction- and retrofit-driven demand and the specification-driven end market (accession 0001628280-26-006372, filed Feb 9, 2026).
Peer Cohorts (Per Segment, With Filing Citations)
Zurn Elkay (whole company) (reported)
- PNR (Pentair plc)
- (no filing in the citation store)
- IEX (IDEX CORP)
- (no filing in the citation store)
- XYL (Xylem Inc.)
- (no filing in the citation store)
- WTS (WATTS WATER TECHNOLOGIES INC)
- (no filing in the citation store)
- MWA (MUELLER WATER PRODUCTS, INC.)
- (no filing in the citation store)
- FLS (FLOWSERVE CORP)
- (no filing in the citation store)
- NDSN (NORDSON CORPORATION)
- (no filing in the citation store)
- HAYW (Hayward Holdings, Inc.)
- (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.