This report is an updated version of the report published on 20 June 2023 at 12:30 PM PDT.

Zurn Elkay Water Solutions Corporation (NYSE: ZWS)

Zurn Elkay Water Solutions Corporation provides an array of advanced water system solutions to protect environment and human health. The company is involved in procuring, designing, manufacturing, and selling products that provide water quality improvement, water flow control, and conservation systems.

Investment Rationale – SELL at USD 25.84

• Profit Booking: ZWS has crossed its Resistance 1 level suggested in the report on 15 March 2023; thus, it is giving a profit booking opportunity.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, and Price/Earnings) are higher than the median for the Building Products sector.
• Technical Indicator: The momentum oscillator 14-day RSI (~69.85) is approaching the overbought zone; thus, price correction can be expected in the short term.
• Financial Decline: During Q1 FY23, EBITDA and Net Profit margin declined to 18.4% and 6.1%, respectively, compared to 21.1% and 12.3%, respectively, in Q1 FY22.

ZWS Daily Chart

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

Considering that the resistance level, and risks associated, it is prudent to book profits at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current price of USD 25.84 (as of June 20, 2023, at 10:15 AM PDT).

Note: This report may be updated with details around fundamental and technical analysis, price/ chart in due course, as appropriate.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 20 June 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement. 

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.