Is Mueller Water Products (MWA) a Buy at a Thirsty Valuation?

The question of whether Mueller Water Products (MWA) is undervalued hinges on a delicate balance between its recent operational outperformance, its valuation metrics relative to peers, and the long-term tailwinds of the water infrastructure sector. With fiscal 2025 results showing resilience amid macroeconomic headwinds, the company's stock has sparked debate among investors. Let's dissect the numbers and context to determine if this is a compelling opportunity.

Operational Momentum: A Resilient Core

Mueller Water Products has demonstrated robust operational momentum in 2025. For the full fiscal year, the company reported an 8.7% increase in net sales to $1.4 billion and a 14.6% rise in adjusted EBITDA to $326 million, with Q4 2025 results particularly striking according to the earnings call transcript. In the fourth quarter, revenue surged to $380.8 million, surpassing analyst expectations of $358.27 million, while adjusted EBITDA grew by 26.6% year-over-year to $91.8 million, driven by a margin expansion to 24.1%. This performance underscores the company's ability to navigate supply chain disruptions and a slowing residential construction market, a sector that has historically been a drag on its growth.

The company's guidance for 2026 further reinforces confidence. It now anticipates adjusted EBITDA between $345 million and $350 million, with a 100 basis point margin improvement expected. Over the past three years, MWA has averaged a 22.3% annual EBITDA per share growth rate, a track record that suggests disciplined cost management and pricing power in a fragmented industry.

Valuation: A Discounted Premium?

Despite these strong fundamentals, MWA's stock has underperformed in recent months, trading at a price-to-earnings (P/E) ratio of 26.9x, modestly below its estimated fair ratio of 30.3x according to market analysis. This discount appears at odds with its financial performance, particularly when compared to industry benchmarks. The machinery sector's average P/E is 23.5x, while MWA's peer valuations reach 46.4x according to the same analysis, suggesting the stock is modestly undervalued relative to both its sector and direct competitors.

The company's price-to-EBITDA (P/EBITDA) multiple, though not explicitly stated, can be inferred from its 2025 adjusted EBITDA of $326 million and trailing revenue of $1.4 billion. Analysts project a fair value of $27.67 per share, implying upside potential if the market re-rates the stock to reflect its improved margins and growth trajectory. However, the stock's recent decline-despite beating Q4 earnings and revenue expectations-reflects investor caution about near-term headwinds, including delays in federal infrastructure funding and a softening housing market according to financial reports.

Industry Tailwinds: A $46.4 Billion Future

The water infrastructure sector itself is a critical factor in MWA's long-term potential. The global water infrastructure development market is projected to grow at a 10.1% compound annual growth rate (CAGR) from 2025 to 2030, reaching $46.44 billion by 2030. This growth is fueled by aging infrastructure in developed economies, rising urbanization, and emerging demand from industries like data centers, which are expected to increase water usage as AI and cloud computing expand according to market research.

Government spending is another key driver. The 2021 Infrastructure Investment and Jobs Act allocated $69 billion for water infrastructure, though disbursement remains slow due to administrative bottlenecks and inflation according to financial reports. Even with these delays, the U.S. water utility sector faces a projected $194 billion funding gap by 2030 according to the same reports, creating a structural need for private-sector solutions. MWA's leadership in valves, fire hydrants, and water meters positions it to benefit from this demand, particularly as utilities prioritize efficiency and digitalization to reduce non-revenue water losses according to industry analysis.

Risks and Considerations

Investors should not ignore the risks. The residential construction market, which accounts for a significant portion of MWA's revenue, has weakened, and further declines could pressure growth. Additionally, delays in federal funding could slow infrastructure projects, dampening near-term demand. While the company's margins have improved, rising input costs and inflationary pressures remain potential headwinds.

Conclusion: A Buy for the Long-Term

Mueller Water Products appears undervalued in the context of its operational performance and industry positioning. Its strong EBITDA growth, margin expansion, and alignment with a sector poised for multi-year growth make it an attractive candidate for long-term investors. While near-term risks exist, the company's ability to outperform expectations and its exposure to structural demand trends-such as infrastructure modernization and digitalization-justify a re-rating. For those willing to look beyond short-term volatility, MWA offers a compelling opportunity to participate in the inevitable rise of water infrastructure.