Mueller Industries (MLI) Pulls Back As Undervalued Case Comes Into Focus

Mueller Industries stock reaction and recent performance snapshot

Mueller Industries (MLI) has been drawing fresh attention after recent share price moves, with the stock closing at US$62.96. That places recent trading against a backdrop of mixed short term returns.

Over the past month, Mueller Industries is down about 8%. The stock is also down roughly 5% over the past 3 months, while its 1 year total return of about 31% reflects a different recent experience for longer term holders.

For Mueller Industries, the recent soft share price momentum contrasts with a strong longer term picture, with a 1 year total shareholder return of about 31% and a very large 5 year total shareholder return that reflects substantial value creation for patient investors.

Spot opportunities with similar profiles by scanning our hand picked list of solid balance sheet and fundamentals (52 results) alongside Mueller Industries.

After a pullback that follows strong multi year returns, Mueller Industries now sits in a very different spot on many watchlists. Investors may be considering whether to commit fresh capital at current levels or wait for a potentially cheaper entry.

Price-to-earnings of 16.1x for Mueller Industries: Is it justified?

On a P/E of 16.1x, Mueller Industries is priced below both its peers and the wider US machinery industry, even after the recent pullback to $62.96.

The P/E ratio compares the current share price with earnings per share. For a company like Mueller Industries, with established profitability in piping systems, industrial metals and climate products, this is a commonly watched yardstick because earnings are a primary driver of shareholder returns.

Mueller Industries is flagged as good value on several fronts. The stock trades at about 4.2% below one internal fair value estimate and is also assessed as trading below an estimated future cash flow value of $64.76 per share. In addition, earnings grew 20% over the past year, ahead of its 11.2% yearly growth over the past 5 years, and ahead of the US machinery industry, which recorded 6% earnings growth. That combination suggests the market price may not fully reflect the pace of earnings progress that has been recorded so far.

The relative picture reinforces this. Mueller Industries is described as good value on a P/E basis compared to peer companies at 35x and compared to the US machinery industry average of 25.7x. It is also assessed as good value against an estimated fair P/E of 22.9x, a level the market could potentially move towards if sentiment and earnings expectations stayed aligned with that benchmark.

To see how this fair ratio is assessed and what sits behind it, take a closer look at the Explore the SWS fair ratio for Mueller Industries

Result: Price-to-earnings of 16.1x (UNDERVALUED)

However, investors in Mueller Industries still need to watch for softer revenue or net income growth and any setback in its core piping or industrial metals markets.

Find out about the key risks to this Mueller Industries narrative.

Another view on Mueller Industries valuation

Alongside the earnings based view, the SWS DCF model also points to Mueller Industries trading below an estimated future cash flow value of $64.76 per share, versus the recent $62.07 reference. That is a modest gap. Could this smaller margin of difference limit the room for error?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Mueller Industries for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals around Mueller Industries leave you uncertain, take a moment to review the numbers yourself and decide where you stand. You can weigh both the concerns and the upside by checking the 4 key rewards and 1 important warning sign

Looking for more investment ideas beyond Mueller Industries?

If Mueller Industries has your attention, do not stop there. Broaden your watchlist with a few targeted stock ideas that match different investing goals.

• Target potential mispriced opportunities by reviewing our hand picked 54 high quality undervalued stocks that may warrant a closer look alongside your current holdings.
• Prioritize resilience by scanning companies in the 75 resilient stocks with low risk scores and see which businesses line up with your comfort level.
• Focus on financial strength by checking the list of solid balance sheet and fundamentals (52 results) and avoid missing stocks with balance sheets that support long term plans.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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