ZWS: Tariff Pricing And Capital Returns Will Support Balanced Performance Ahead

The analyst price target for Zurn Elkay Water Solutions has inched higher to approximately $51.25 per share, with analysts pointing to stronger anticipated organic sales growth into 2026, ongoing tariff driven pricing tailwinds, and confidence in the company’s ability to deliver double digit earnings and cash flow growth, supported by its current valuation.

Analyst Commentary

Recent Street research reflects a generally constructive but balanced stance on Zurn Elkay, with multiple firms lifting price targets in response to the company’s Q3 performance and updated medium term growth outlook. Analysts are increasingly focused on the durability of tariff driven pricing, the visibility into non residential demand, and the company’s ability to convert its strategic initiatives into sustained earnings and cash flow growth.

Bullish Takeaways

• Bullish analysts highlight raised price targets in the mid to low $50s range as evidence that the market is beginning to recognize Zurn Elkay’s potential for double digit earnings and cash flow growth over the next several years.
• The updated outlook for approximately 8% organic sales growth in FY25, followed by mid single digit growth into 2026, is seen as achievable given current non residential construction signals and the company’s strong position in water management and Elkay drinking water platforms.
• Analysts view elevated tariff driven pricing as a key support for near term margin expansion, helping underpin upside to current estimates through at least Q4 while giving management more flexibility to reinvest for growth.
• With what is described as significant balance sheet dry powder, bullish analysts see room for accretive M&A to supplement organic growth, supporting a premium valuation versus peers if execution on capital deployment remains disciplined.

Bearish Takeaways

• More cautious analysts, including those maintaining Neutral ratings, note that while price targets are moving higher, the stock’s recent rally leaves less room for multiple expansion if growth moderates from current expectations.
• There is some concern that a meaningful portion of recent upside is tied to tariff related pricing, which could prove less durable if the pricing environment normalizes or competitive pressure intensifies.
• Visibility into the broader non residential cycle is still not fully clear, and bearish analysts worry that a slower than expected recovery in later cycle projects could challenge management’s mid single digit growth framework for 2026.
• Given the increased reliance on successful execution of M&A to sustain above market growth, skeptics highlight integration risk and the potential for overpaying for assets, which could weigh on returns and compress the valuation premium if not managed carefully.

What's in the News

• Zurn Elkay Water Solutions increased its annual dividend by 22% to $0.44 per share, reflecting management’s positive view of the company’s cash flow outlook (Key Developments).
• The company raised the remaining authorization under its equity repurchase program to $500 million as of October 28, 2025, providing additional flexibility for capital returns (Key Developments).
• Management issued fourth quarter 2025 guidance calling for high single digit core sales growth (Key Developments).
• From July 1 to September 30, 2025, Zurn Elkay repurchased 575,600 shares for $25 million, bringing total buybacks since 2015 to 21,771,728 shares, or 14.61% of shares outstanding (Key Developments).
• Elkay launched the Liv EZ built in filtered water dispenser for residential use, extending its commercial hydration technology into home applications with advanced contaminant reduction (Key Developments).

Valuation Changes

• Fair Value Estimate has risen slightly from approximately $50.29 to $51.25 per share, reflecting modestly higher long term expectations.
• Discount Rate has increased marginally from about 8.45% to 8.48%, implying a slightly higher required return for investors.
• Revenue Growth assumption has edged higher from roughly 5.77% to 5.93%, indicating a small upgrade to the medium term topline outlook.
• Net Profit Margin forecast has declined slightly from about 15.40% to 15.33%, signaling a minor compression in expected profitability.
• Future P/E multiple has risen modestly from about 33.7x to 34.4x, suggesting a small increase in the valuation investors are willing to pay for forward earnings.