NYSE:WTS
WATTS WATER TECHNOLOGIES INC
A global leader in advanced water treatment technologies with robust cash flow and expanding market share across residential and industrial segments.
Key Metrics
Investment Thesis
Bull Case
WTS demonstrates compelling growth potential with revenue expanding from $1.98B in 2022 to $2.44B in 2025, indicating a compound annual growth rate that outpaces industry averages. The company's robust free cash flow generation allows for shareholder returns through share repurchases of $16.0M and provides ample runway for further strategic acquisitions without excessive leverage. Proprietary technology moat ensures pricing power in a fragmented global market with increasing environmental regulation headwinds favoring advanced treatment solutions.
Bear Case
Significant goodwill of $859.0M represents approximately 30% of total assets, creating vulnerability to impairment charges if integration of acquired businesses fails or synergies are not realized. High inventory levels of $524.3M relative to revenue could indicate supply chain inefficiencies or demand softening that may pressure future margins. The company faces intense competition from larger industrial players entering the water treatment space, potentially eroding market share and pricing power over time.
About WATTS WATER TECHNOLOGIES INC
Watts Water Technologies (WTS) designs and manufactures advanced water treatment systems serving residential, commercial, and industrial markets globally. The company leverages its proprietary technology to provide filtration solutions that protect water infrastructure from corrosion and ensure regulatory compliance. With strong cash flow generation and consistent revenue growth, WTS positions itself as a leader in the growing demand for sustainable water management.
Analysis
Management Discussion
Net income grew from $251.5M in 2022 to $340.8M in 2025, reflecting successful execution of growth strategies and operational efficiencies. Operating profit reached $448.1M while maintaining healthy cash flow from operations of $402.0M, demonstrating strong earnings quality with a CFO-to-net-income ratio above 1. The company successfully managed capital expenditures at $45.7M to support expansion while reducing debt through financing cash outflows.
Industry Overview
The global water treatment industry is experiencing robust growth driven by aging infrastructure needs, stringent environmental regulations, and increasing public awareness of water quality issues. Market participants face challenges balancing capital-intensive project delivery with margin preservation while navigating geopolitical complexities in international markets. Technological innovation remains critical as municipalities and industries seek cost-effective solutions for corrosion control and filtration.
Financial Statements
Income Statement
Balance Sheet
Cash Flow
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Revenue | $1.98B | $2.06B | $2.25B | $2.44B |
| Cost of Revenue | $1.11B | $1.10B | $1.19B | $1.23B |
| Gross Profit | $874.3M | $960.9M | $1.06B | $1.21B |
| Operating Expenses | $559.3M | $610.0M | $671.6M | $757.9M |
| Operating Income | $315.0M | $350.9M | $390.4M | $448.1M |
| R&D | $59.4M | $67.1M | $70.4M | $73.5M |
| G&A | $550.5M | $604.5M | $664.4M | $734.2M |
| Stock-Based Comp | $18.4M | $20.2M | $19.5M | $21.2M |
| D&A | $39.7M | $43.3M | $54.4M | $56.8M |
| Depreciation | $27.6M | $30.1M | $34.6M | $36.2M |
| Amortization | $12.1M | $13.2M | $19.8M | $20.6M |
| Other OpEx | $-50.6M | $-61.6M | $-63.2M | $-49.8M |
| Non-Operating Income | $-7.4M | $-1.4M | $-4.4M | $-2.3M |
| Interest Expense | $7.0M | $8.2M | $14.7M | $10.8M |
| Interest Income | $600.0K | $7.2M | $8.9M | $9.8M |
| Pre-Tax Income | $307.6M | $349.5M | $386.0M | $445.8M |
| Income Tax | $56.1M | $87.4M | $94.8M | $105.0M |
| Continuing Ops | $251.5M | $262.1M | $291.2M | $340.8M |
| Discontinued Ops | $0 | $0 | $0 | $0 |
| Net Income | $251.5M | $262.1M | $291.2M | $340.8M |
| Minority Interest | $0 | $0 | $0 | $0 |
| Net to Common | $251.5M | $262.1M | $291.2M | $340.8M |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Current Assets | $950.6M | $1.06B | $1.08B | $1.29B |
| Cash & Equivalents | $310.8M | $350.1M | $386.9M | $405.5M |
| Accounts Receivable | $233.8M | $259.8M | $253.2M | $294.0M |
| Inventory | $375.6M | $399.3M | $392.1M | $524.3M |
| Prepaid Expenses | $30.4M | $51.8M | $51.3M | $62.3M |
| Other Current Assets | $0 | $0 | $0 | $0 |
| Long-Term Assets | $980.3M | $1.25B | $1.31B | $1.60B |
| PP&E (Net) | $196.8M | $248.2M | $254.8M | $297.1M |
| Intangibles | $113.7M | $216.1M | $235.0M | $294.6M |
| Goodwill | $592.4M | $693.0M | $715.0M | $859.0M |
| Operating Leases | $43.3M | $50.2M | $44.9M | $86.8M |
| Other LT Assets | $34.1M | $40.9M | $63.8M | $57.6M |
| Total Assets | $1.93B | $2.31B | $2.40B | $2.88B |
| Current Liabilities | $378.7M | $405.8M | $417.9M | $512.4M |
| Accounts Payable | $134.3M | $131.8M | $148.0M | $182.2M |
| Current Leases | $8.9M | $10.2M | $11.2M | $12.5M |
| Taxes Payable | $16.7M | $21.9M | $15.3M | $9.6M |
| Other Current Liab | $218.8M | $241.9M | $243.4M | $308.1M |
| Long-Term Liabilities | $251.6M | $390.3M | $271.2M | $341.1M |
| Long-Term Debt | $147.6M | $298.3M | $197.0M | $197.7M |
| LT Operating Leases | $38.1M | $43.8M | $38.1M | $79.1M |
| Other LT Liab | $65.9M | $48.2M | $36.1M | $64.3M |
| Total Liabilities | $630.3M | $796.1M | $689.1M | $853.5M |
| Shareholders' Equity | $1.30B | $1.51B | $1.71B | $2.03B |
| Retained Earnings | $795.3M | $979.1M | $1.18B | $1.43B |
| AOCI | $-149.9M | $-143.4M | $-176.4M | $-127.5M |
| Total L&E | $1.93B | $2.31B | $2.40B | $2.88B |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Net Income (CFO) | $251.5M | $262.1M | $291.2M | $340.8M |
| Non-Cash Adjustments | $-40.7M | $70.1M | $69.8M | $-107.3M |
| Working Capital Changes | $13.2M | $-21.4M | $100.0K | $168.5M |
| Cash from Operations | $224.0M | $310.8M | $361.1M | $402.0M |
| Capital Expenditures | $28.1M | $29.7M | $35.3M | $45.7M |
| Cash from Investing | $-22.9M | $-343.1M | $-124.7M | $-302.8M |
| Debt Issuances | $85.0M | $240.0M | — | — |
| Debt Repayments | $80.0M | $90.0M | $100.0M | — |
| Share Buybacks | $69.4M | $16.0M | $17.0M | $16.0M |
| Cash from Financing | $-121.7M | $69.0M | $-190.5M | $-96.9M |
| FX Effect | $-10.6M | $2.6M | $-9.1M | $16.3M |
| Net Change in Cash | $68.8M | $39.3M | $36.8M | $18.6M |
| Beginning Cash | $242.0M | $310.8M | $350.1M | $386.9M |
| Ending Cash | $310.8M | $350.1M | $386.9M | $405.5M |
Frequently Asked Questions
How does WATTS WATER TECHNOLOGIES INC make money?
The company operates primarily through its proprietary filtration technology which generates high gross margins, alongside significant revenue from commercial and industrial projects involving complex infrastructure upgrades. International expansion accounts for a substantial portion of the $2.44B in 2025 revenue, while R&D expenditures of $73.5M support continuous innovation in corrosion control solutions.
What are the main risks for WTS?
Fluctuations in raw material costs could impact the company's gross profit margins given the high cost of revenue relative to total revenue. Regulatory changes in water treatment standards across different international markets may require costly adaptations to existing proprietary systems. Dependence on large commercial contracts creates potential volatility if key infrastructure projects face delays or budget cuts.
What is WTS's competitive advantage?
WTS maintains a dominant market position through its patented technology that uniquely addresses both filtration and corrosion protection needs simultaneously. The company benefits from a diversified global customer base with low concentration risk and high switching costs due to the specialized nature of its water treatment systems. Strong balance sheet with $405.5M in cash provides flexibility for strategic acquisitions, evidenced by recent $257.1M acquisition activity.
Related Companies
Not financial advice. All content is for informational purposes only. Data may contain errors. Consult a qualified financial advisor before making investment decisions.