ZWS

We rate Zurn Elkay Water Solutions Corp (ZWS) as a Hold with a composite score of 59.7/100 at a current price of $50.60. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (78th percentile) and value (67th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (27th percentile) and momentum (58th percentile) tempers our overall conviction. We assign a Wide Moat rating (72/100), Low uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Zurn Elkay Water Solutions Corp holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 59.7/100 places it at rank #721 in our full 7,333-stock universe. At $7.9B in market capitalization, Zurn Elkay Water Solutions Corp is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 11%, though momentum at the 58th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 46% (+3.1pp vs sector) narrow to operating margins of 17% (+15.7pp vs sector) and net margins of 11.7%, yielding a gross-to-net conversion rate of 26%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $50.60, Zurn Elkay Water Solutions Corp is trading near fair value based on current fundamentals. Our value factor score of 67/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 42.5x (a 91% premium to the sector median of 22.3x), EV/EBITDA of 31.1x (at a premium), P/B of 5.3x, P/S of 5.0x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to Zurn Elkay Water Solutions Corp. The company exhibits strong financial stability with a beta of 0.89, conservative leverage (31% D/E), and a stability factor in the 78th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 42.5x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 78th percentile and quality factor at the 65th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 46% provide a buffer against cost pressures; above-average stability (78th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Zurn Elkay Water Solutions Corp's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 12.4%, and the balance sheet is managed within acceptable parameters (D/E: 31%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Zurn Elkay Water Solutions Corp falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 0.77% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Zurn Elkay Water Solutions Corp receives a Hold rating with a composite score of 59.7/100 (rank #721 of 7,333). Our quantitative framework assigns a Wide Moat (72/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 59/100.

Our analysis supports a neutral stance on Zurn Elkay Water Solutions Corp. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.