[ZWS] Zurn Elkay Water Solutions Thesis 2026: Plumbing Drinking Water Drives Specialty Capital Return

Key Takeaways

• ZWS FY2025 revenue ~$1.55-1.65B (+2-5% YoY) with adj. EPS ~$1.55-1.70 reflecting continued post-July 2022 Zurn-Elkay merger $1.55-1.65B aggregate Plumbing Products + Drinking Water Solutions revenue ($0.95-1.0B aggregate Plumbing Products + ~$0.55-0.60B aggregate Drinking Water Solutions + ~$0.05-0.10B aggregate Other) under continued Chairman + CEO Todd Adams since 2018 (~7-year tenure as Zurn Elkay CEO; selected primary post-July 2022 Zurn-Elkay merger of equals architect).
• Plumbing Products + Specification + Commercial Pipeline (~$0.95-1.0B revenue): ~$0.95-1.0B aggregate Plumbing Products revenue (~62%+ revenue mix); selected primary Zurn brand Specification + Commercial + Institutional Plumbing (selected primary Drains + Trench Drains + Backwater Valves + PEX + Water Heaters + Ball Valves + Trap Primers + Water Filters + Wilkins backflow + selected various aggregate ~80%+ aggregate Specification + Commercial mix) + selected various aggregate Education + Healthcare + Hospitality + Office + Industrial end-market exposure + selected various aggregate ~$1.5-2.5B aggregate aggregate North American Specification Plumbing TAM.
• Drinking Water Solutions + Elkay + Filtration Pipeline: selected continued post-July 2022 selected various aggregate Drinking Water Solutions aggregate ~$0.55-0.60B aggregate revenue (~36%+ aggregate revenue mix; selected primary post-July 2022 Elkay merger Drinking Water Solutions + selected primary Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks + selected primary post-July 2022 Elkay Education + Healthcare + Office + Hospitality end-market exposure) + selected various aggregate ~$0.05-0.10B aggregate Other revenue (~3-7% revenue mix; selected primary post-July 2022 Zurn-Elkay legacy aggregate) + selected various aggregate ~$1.0-1.5B aggregate aggregate North American Drinking Water Solutions TAM.
• Capital position + balance sheet: ~$0.40 aggregate annual dividend (~24%+ aggregate payout ratio; ~1.0-1.4% aggregate dividend yield); ~$100-200M aggregate FY2025 buybacks; aggregate capital return ~$170-275M FY2025; net leverage ~1.5-2.0x Net Debt/EBITDA; investment-grade Baa3/BBB- credit rating; ~165-170M diluted shares; weighted average debt maturity ~5-6 years.
• FY2026 thesis catalysts: Plumbing Products + Specification + Commercial pipeline (~$0.95-1.0B + 80%+ Specification + Commercial mix + Zurn brand) + Drinking Water Solutions + Elkay + Filtration pipeline ($0.60-0.65B + Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks) + selected $1.5-2.5B North American Specification Plumbing TAM + selected post-July 2022 Zurn-Elkay merger cost synergies ($50-65M run-rate).

Company Background

Zurn Elkay Water Solutions Corporation (NYSE: ZWS) is one of the largest US specialty Plumbing Products + Drinking Water Solutions companies, founded 1900 as Zurn Industries by John A. Zurn in Erie Pennsylvania (~125-year heritage; selected primary post-July 2022 Zurn-Elkay Water Solutions merger of equals creating Zurn Elkay specialty). Selected post-2008-2021 Apollo Global Management ownership of Zurn Industries; selected post-October 2021 ~$1.6B+ aggregate Rexnord Process & Motion Control divestiture (selected primary post-October 2021 Zurn Water Solutions standalone NYSE listing via Rexnord-Zurn separation); selected post-July 2022 ~$2.4B+ aggregate Zurn-Elkay Water Solutions merger of equals (~62%/38% Zurn/Elkay; selected primary post-July 2022 Zurn-Elkay rebrand + Drinking Water Solutions addition); selected post-2018 Todd Adams CEO appointment (Rexnord legacy CEO + post-2021 Zurn standalone CEO + post-July 2022 Zurn-Elkay merger architect); HQ Milwaukee Wisconsin; ~2,500-3,000 employees globally; selected various aggregate global Plumbing + Drinking Water Solutions manufacturing footprint (Erie Pennsylvania + Milwaukee Wisconsin + selected various aggregate North America).

ZWS operates 1 primary business: Plumbing Products + Drinking Water Solutions ~100% revenue. Plumbing Products revenue 62%+ revenue mix ($0.95-1.0B; selected primary Zurn brand Specification + Commercial + Institutional Plumbing + Drains + Trench Drains + Backwater Valves + PEX + Water Heaters + Ball Valves + Wilkins backflow). Drinking Water Solutions revenue 36%+ revenue mix ($0.55-0.60B; selected primary Elkay brand Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks). Other revenue 3-7% revenue mix ($0.05-0.10B). Geographic mix: North America ~95%+ + selected various aggregate international ~5%.

Capital position: ~$0.40 aggregate annual dividend (~24%+ aggregate payout ratio; ~1.0-1.4% aggregate dividend yield); ~$100-200M aggregate FY2025 buybacks; aggregate capital return ~$170-275M FY2025; net leverage ~1.5-2.0x Net Debt/EBITDA; investment-grade Baa3/BBB- credit rating; ~165-170M diluted shares; weighted average debt maturity ~5-6 years.

Plumbing Products + Specification + Commercial Pipeline (~$0.95-1.0B Revenue)

The Plumbing Products + Specification + Commercial pipeline is ZWS's foundation thesis: ~$0.95-1.0B aggregate Plumbing Products revenue (~62%+ revenue mix) + selected primary Zurn brand Specification + Commercial + Institutional Plumbing (selected primary Drains + Trench Drains + Backwater Valves + PEX + Water Heaters + Ball Valves + Trap Primers + Water Filters + Wilkins backflow + selected various aggregate ~80%+ aggregate Specification + Commercial mix) + selected various aggregate Education + Healthcare + Hospitality + Office + Industrial end-market exposure + selected various aggregate ~$1.5-2.5B aggregate aggregate North American Specification Plumbing TAM. Selected primary ZWS platform: Zurn brand Specification + Commercial + Institutional + ~80%+ Specification + Commercial mix.

FY2025 Plumbing Products dynamics ($0.95-1.0B aggregate Plumbing revenue): selected continued post-2024 ~+2-5% aggregate Plumbing Products revenue growth (cyclical North American Specification Plumbing demand + selected various aggregate Education + Healthcare + Hospitality + Office + Industrial cycle) + ~$0.95-1.0B aggregate Plumbing Products revenue + selected various aggregate ~80%+ aggregate Specification + Commercial mix + selected various aggregate Education + Healthcare + Hospitality + Office + Industrial end-market exposure. Selected post-2024 ~$0.30-0.55 incremental annual EPS contribution as Plumbing Products + Specification + Commercial pipeline drives incremental margin (post-July 2022 Zurn-Elkay merger cost synergies $50-65M run-rate).

FY2026 catalyst: continued Plumbing Products + Specification + Commercial pipeline + ~$0.30-0.55 incremental annual EPS contribution under continued Todd Adams leadership (~7-year tenure). Selected aggregate ~$0.97-1.05B aggregate Plumbing Products revenue + selected various ~+2-5% aggregate growth + selected various aggregate ~80%+ aggregate Specification + Commercial mix + selected various aggregate post-July 2022 Zurn-Elkay merger continued cost synergies. Risks: Watts Water Technologies (WTS) + Mueller Industries (MLI) + A. O. Smith (AOS) + Roper Technologies + Masco + Fortune Brands + selected various aggregate North American Specification Plumbing competitive displacement + selected various aggregate Federal Reserve interest rate cycle considerations + selected various aggregate Education + Healthcare + Hospitality + Office + Industrial end-market cycle considerations.

Drinking Water Solutions + Elkay + Filtration Pipeline

The Drinking Water Solutions + Elkay + Filtration pipeline is ZWS's primary growth thesis: selected continued post-July 2022 selected various aggregate Drinking Water Solutions aggregate ~$0.55-0.60B aggregate revenue (~36%+ aggregate revenue mix; selected primary post-July 2022 Elkay merger Drinking Water Solutions + selected primary Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks + selected primary post-July 2022 Elkay Education + Healthcare + Office + Hospitality end-market exposure) + selected various aggregate ~$0.05-0.10B aggregate Other revenue (~3-7% revenue mix; selected primary post-July 2022 Zurn-Elkay legacy aggregate) + selected various aggregate ~$1.0-1.5B aggregate aggregate North American Drinking Water Solutions TAM.

FY2025 Drinking Water Solutions + Elkay dynamics: selected primary post-July 2022 ~$0.55-0.60B aggregate Drinking Water Solutions revenue + selected various aggregate Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks + selected primary post-July 2022 Elkay Education + Healthcare + Office + Hospitality end-market exposure + selected various aggregate ~$0.05-0.10B aggregate Other revenue. Selected post-2024 ~$0.20-0.30 incremental annual EPS contribution as Drinking Water Solutions + Elkay + Filtration pipeline drives incremental margin.

FY2026 catalyst: continued Drinking Water Solutions + Elkay + Filtration pipeline + ~$0.20-0.30 incremental EPS contribution. Selected aggregate ~$0.58-0.65B aggregate Drinking Water Solutions revenue + selected various aggregate Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks continued growth + selected various aggregate post-July 2022 Elkay Education + Healthcare + Office + Hospitality end-market expansion + selected various aggregate post-July 2022 Zurn-Elkay merger cost synergies ($50-65M run-rate). Risks: Watts Water Technologies + Mueller Industries + A. O. Smith + Roper Technologies + Masco + Fortune Brands + Halsey Taylor (Mueller-owned) + selected various aggregate Drinking Water Solutions competitive displacement + selected various aggregate post-July 2022 Elkay integration considerations + Federal Reserve interest rate cycle considerations.

Capital Position + Balance Sheet

Capital position + balance sheet: ~$0.40 aggregate annual dividend (~24%+ aggregate payout ratio; ~1.0-1.4% aggregate dividend yield) + ~$100-200M aggregate FY2025 buybacks + aggregate capital return ~$170-275M FY2025 + net leverage ~1.5-2.0x Net Debt/EBITDA + investment-grade Baa3/BBB- credit rating + ~165-170M diluted shares + weighted average debt maturity ~5-6 years.

FY2026 catalyst: continued ~$170-310M aggregate annual capital return + selected continued ~1.0-1.4% aggregate dividend yield + selected continued ~$0.40-0.45 aggregate annual dividend + selected continued ~1.5-2.0x net leverage + selected various aggregate ~$100-200M aggregate annual buybacks. Selected ~24%+ aggregate payout ratio + selected investment-grade Baa3/BBB- credit rating support continued capital return + Plumbing Products + Drinking Water Solutions + post-July 2022 Zurn-Elkay merger continued integration capacity.

Key Core Metrics

• FY2025 revenue ~$1.55-1.65B (+2-5% YoY) vs $1.55B FY2024; adj. EPS ~$1.55-1.70
• 1 segment: Plumbing Products + Drinking Water Solutions ~100%
• Structure: Plumbing Products ~62%+ ($0.95-1.0B) + Drinking Water Solutions ~36%+ ($0.55-0.60B) + Other ~3-7% ($0.05-0.10B)
• Geographic mix: North America ~95%+ + selected various aggregate international ~5%
• Plumbing Products: Zurn brand Specification + Commercial + Institutional Plumbing
• ~80%+ Specification + Commercial mix
• End-markets: Education + Healthcare + Hospitality + Office + Industrial
• North American Specification Plumbing TAM: ~$1.5-2.5B
• Drinking Water Solutions: Elkay brand Bottle Filling Stations + Water Coolers + Water Filtration + Stainless Steel Sinks
• North American Drinking Water Solutions TAM: ~$1.0-1.5B
• Post-July 2022 Zurn-Elkay merger cost synergies: ~$50-65M run-rate
• Net leverage ~1.5-2.0x Net Debt/EBITDA
• ~165-170M diluted shares; ~$170-275M total capital return FY2025
• Dividend ~$0.40 annual (~24%+ payout; ~1.0-1.4% yield)
• ~$100-200M aggregate FY2025 buybacks
• Investment-grade Baa3/BBB- credit rating

Market Evaluation

ZWS FY2026 market evaluation: at ~$30-40 share price + ~165-170M diluted shares = ~$5-7B market cap; ~$0.40 aggregate annual dividend + ~1.0-1.4% aggregate dividend yield. Selected primary ZWS peers: Watts Water Technologies (WTS, ~$5-7B Mcap; competitor in Specification Plumbing) + Mueller Industries (MLI, ~$8-10B; copper plumbing) + A. O. Smith (AOS, ~$10-12B; Water Heaters) + Roper Technologies (ROP, ~$50-60B) + Masco (MAS, ~$15-18B) + Fortune Brands Innovations (FBIN, ~$8-10B) + selected various aggregate global Plumbing + Drinking Water Solutions companies. Selected ZWS ~17-22x P/E + selected ~12-14x EV/EBITDA + selected ~1.0-1.4% dividend yield + selected aggregate ~$1.60-1.70B aggregate FY2026 revenue + selected aggregate ~$1.75-1.95 aggregate FY2026 EPS + selected aggregate ~$170-310M aggregate FY2026 capital return + selected aggregate Plumbing Products + Drinking Water Solutions + Zurn-Elkay merger pipeline. FY2026 base case: ~$1.60-1.70B aggregate revenue + ~$1.75-1.95 adj. EPS + ~$170-310M aggregate capital return. Bull case: North American Specification Plumbing demand recovery + Drinking Water Solutions Bottle Filling Stations + Water Filtration adoption + post-July 2022 Zurn-Elkay merger cost synergies acceleration + Federal Reserve interest rate cuts + Education + Healthcare + Hospitality + Office + Industrial end-market cycle recovery drives ~$1.65-1.75B aggregate revenue + ~$1.85-2.10 EPS. Bear case: Watts Water Technologies + Mueller Industries + A. O. Smith + Roper Technologies + Masco + Fortune Brands + Halsey Taylor competitive intensification + Federal Reserve interest rate cycle considerations + Education + Healthcare + Hospitality + Office + Industrial end-market cycle considerations + post-July 2022 Elkay integration considerations + post-October 2021 Zurn-Rexnord separation overhang considerations + Stainless Steel commodity cycle considerations drives ~$1.50-1.60B revenue + ~$1.40-1.60 EPS. The thesis depends on Plumbing Products + Specification + Commercial pipeline + Drinking Water Solutions + Elkay + Filtration pipeline + post-July 2022 Zurn-Elkay merger synergies.