I last wrote about Mueller Water (MWA) in late September, and despite liking Mueller's leverage to residential housing construction and potentially greater federal support for water infrastructure projects, I wasn't that sold on the shares. Since then, the stock has very slightly outperformed the S&P 500 and the industrial sector as a whole, more or less keeping pace with comps like Watts (WTS) and Xylem (XYL).
I'm still not all that bullish that federal infrastructure stimulus will mean much for Mueller, but I guess any help is help. I am more bullish on residential construction, though, as I do see ongoing strength and an under-supplied market. I'm also more bullish on the prospects for a manufacturing footprint upgrade to generate better long-term margins, with capex spending normalizing in a few years and adding a further boost to FCF margins. I still don't love the DCF-based valuation here, but the shares do seem undervalued on margins, and in an expensive industrial sector, this name does have some catch-up appeal.
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