Is Gorman-Rupp's Focus on Water Infrastructure a Long-Term Investment Opportunity?

The Gorman-Rupp Company (GRC) designs, manufactures, and sells pumps and related equipment for their use in water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire suppression, heating, ventilation, and air conditioning, military and other liquid-handling applications.

Through its diverse product range and presence across wide markets in the world, The Gorman-Rupp is widening its operations in the water management systems market, which is expected to experience significant growth in the future. The market is anticipated to exhibit a notable CAGR of 13.4%, resulting in a market volume of $25.19 billion by 2028.

Factors including growing urbanization, increasing investments in water recycling and preservation, adoption of IoT solutions for improved efficiency, and adoption of smart water management technologies are driving the market demand. Amid these rising needs for water management solutions, GRC is well-poised to grow strongly in the coming years.

During the third quarter and nine months of 2024, the company reported impressive sales growth in the municipal market fueled primarily by domestic flood control and wastewater projects related to increased infrastructure investment, coupled with growth in computer cooling and the petroleum market driven by increased international refueling applications.

Further, demonstrating its commitment to returning value to shareholders, GRC’s Board of Directors declared a quarterly cash dividend of $0.185 per share. The dividend was paid on December 10, 2024, to holders of record on November 15, 2024. The cash dividend represented a 2.8% increase from the previous quarter and the 52nd consecutive year of increased dividends to its shareholders.

Shares of GRC have surged 12.4% over the past six months and 19.9% over the past year to close its last trading session at $41.15.

Let’s look at factors that could influence GRC’s performance in the upcoming months.

Robust Financials

GRC’s net sales increased marginally year-over-year to $168.18 million during the third quarter that ended September 30, 2024. Its gross profit grew 9.4% from the year-ago value to $52.66 million. The company’s operating income of $23.88 million indicates an improvement of 9.2% from the prior year’s quarter.

In addition, the company’s non-GAAP adjusted earnings amounted to $12.92 million or $0.49 per share, reflecting growth of 43.9% and 44.1% from the previous year’s quarter, respectively. Its adjusted EBITDA increased 5.1% from the year-ago value to $30.03 million.

Also, the company’s cash and cash equivalents totaled $39.70 million as of September 30, 2024, compared to $30.52 million as of December 31, 2023.

Solid Historical Growth

GRC’s revenue and EBITDA have grown at respective CAGRs of 21.5% and 31.8% over the past three years. The company’s EBIT has increased 31.3% over the same timeframe, while its net income and EPA have improved at CAGRs of 8.2% and 8%, respectively.

Furthermore, the company’s total assets and levered free cash flow have increased at respective CAGRs of 27.9% and 19.4% over the past three years.

Favorable Analyst Estimates

Analysts expect GRC’s revenue for the fourth quarter (ending December 2024) to increase 1.4% year-over-year to $162.84 million. The consensus EPS estimate of $0.45 for the ongoing quarter reflects a 32.4% year-over-year improvement. For the fiscal year ending December 2024, its revenue and EPS are expected to grow marginally and 29.9% year-over-year to $659.80 million and $1.78, respectively.

Additionally, Street expects the company’s revenue and EPS for the fiscal year 2025 to increase 3.6% and 11.2% year-over-year to $683.56 million and $1.98, respectively.

High Profitability

GRC’s trailing-12-month EBIT margin and levered FCF margin of 13.55% and 10.45% are 32.1% and 56.7% higher than the respective industry averages of 10.26% and 6.67%, respectively. Its trailing-12-month ROTC of 7.39% is considerably higher than the industry average of 7.08%.

POWR Ratings Reflect Promise

GRC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GRC has an A grade for Sentiment, which is consistent with its optimistic analyst estimates. It has a B grade for Value, which is in sync with the lower valuation.

In addition, with a five-year beta of 0.92, the stock has earned a grade of B for Stability.

GRC is ranked #6 in the 79-stock A-rated Industrial - Machinery industry.

Beyond what I have stated above, we have also given GRC grades for Growth, Momentum, and Quality. Click here to access all the GRC ratings.

Bottom Line

GRC is a leading pump and pump systems manufacturer and seller. The company delivered strong financial results in the last reported quarter, showcasing impressive sales growth due to growing flood control and wastewater projects and improved gross margin. Further, the current environmental concerns have impacted the awareness and consciousness among people, resulting in demand for water management solutions.

Given the company’s solid financial performance, accelerating profitability, and lower valuation, investors could consider investing in this stock.

How Does The Gorman-Rupp Company (GRC) Stack Up Against Its Peers?

While GRC has an overall POWR Rating of A, investors could also check out these other stocks within the A-rated Industrial - Machinery industry with A (Strong Buy) or B (Buy) ratings: Amada Co. Ltd. ADR (AMDLY), TechnoPro Holdings Inc. ADR (TCCPY), and Smiths Group PLC (SMGZY).

For exploring more A and B-rated industrial stocks, click here.

What To Do Next?

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GRC shares . Year-to-date, GRC has gained 12.23%, versus a 24.51% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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