Shares of Mueller Water Products (NYSE: MWA) hit a 52-week high today. Let's look at how it got here and whether clear skies are ahead.
How it got here
Mueller has been climbing consistently since December of last year, more than doubling in value you since then. The chart below shows the price over the last year:
What primarily seems to be pushing the stock higher is the recovering housing market, as demand for Mueller's products, which include water infrastructure, flow control, and pipe component parts is highly correlated with new construction and renovations. Confirming this comeback, stocks of homebuilders like KB Home (NYSE: KBH) and Toll Brothers (NYSE: TOL) have more than doubled in the last year. Oddly enough, Mueller was in the red for most of the year, as it didn't post a profit until its most recent quarter, with just a middling $0.05 a share. Mueller bulls appear to think this is just the beginning of a turnaround, however, as shares were trading above $15 before the recession.
What's next?
While a crumbling infrastructure and the housing rally may be good reasons to invest in Mueller, and the recent QE3 should further energize the housing market, a look at Mueller's fundamentals might scare some investors away. The company hasn't been profitable since before the recession, and even with analysts expecting earnings per share of $0.17 share next year, that still gives the stock a hefty forward P/E of 29. Expected revenue growth is flat, and the company's debt to cash ratio is over 10 with more than $600 million in debt.
In other words, even though the company has just turned profitable, high expectations already seem to be baked into the share price, Mueller still has a ways to go before legitimately turning around its business. Keep an eye on home sales and new housing starts as a continued increase will likely push Mueller shares higher. Analysts are expecting earnings of $0.04 a share when the company next reports in November.
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