(By Balachander) Mueller Water Products Inc. (NYSE:MWA) shares were upgraded to "Buy" from "Hold" by Brean Murray, Carret & Co. (BMC), which cited recent positive housing end market data points in the United States and the recent contract win to supply American Water Works (NYSE:AWK) with water meters and AMR systems.
The recent divestiture of the U.S. Pipe operations and subsequent strengthening of the balance sheet bode particularly well for the company's short and long-term outlook, the brokerage wrote in a note.
A slowly recovering U.S. economy, aided by low interest rates is enticing buyers back into the housing market, which should continue to stimulate more residential construction, said BMC which established a price target of $5.10 on the stock.
Pending home sales for May rose 5.9 percent, hitting a 2-year high. The Case-Schiller Index of home prices rose 1.3 percent in April, with 19 of 20 major metro areas showing increases. In addition, sales of new single family homes in May hit a 2-year high of 369,000 on an annualized basis.
The recent contract win to supply American Water Works, the largest water utility in the United States with water meters and AMR systems has largely gone unnoticed, BMC said.
"Our due diligence indicates that AWK replaces roughly 300,000 meters annually, and MWA could get the lion's share (or all) of that business if its products perform to expectations, with an expiration that could extend until 2016," the brokerage wrote. "The contract will increase manufacturing capacity utilization in the Mueller Co segment, which should lift margins materially in FY2013 and beyond."
Atlanta, Georgia-based Mueller Water Products is engaged in the manufacture of water infrastructure, flow control, and piping component system products primarily in the United States and Canada.
MWA shares, which have been trading in the 52-week range of $1.94 to $4.06, added 1.28 percent to trade at $3.56 on Monday.