(RTTNews) - Wednesday, KeyBanc Capital upgraded Pentair, Inc. (PNR: News ) shares to Buy from Hold with a price target of $37. The brokerage increased its 2010 EPS estimate to $1.85 from $1.80, while maintaining its 2009 estimate of $1.43.

Analyst Jeffrey Hammond noted that while he maintained a conservative view on the growth prospects of the Water business in the context of valuation, he nonetheless views margin execution in both Technical Products and Water as impressive, evidenced by third quarter of 2009 results. Furthermore, the analyst views current margin progress as sustainable and believes management is poised to retain much of its cost savings as volumes recover.

While meaningful organic growth in Water continues to prove elusive, the analyst believes management remains focused on cultivating meaningful organic core growth opportunities, and in the meantime, he would expect some cyclical recovery in Water to emerge moving into 2010. Secular growth aside, earnings resiliency and internal execution outline a path to PNR exceeding prior peak earnings well ahead of the next volume peak.

The analyst believes this warrants a more constructive view on valuation and consideration of the longer term earnings power, which on a normalized basis, he views as being ~$2.35. As a result, the analyst upgraded the stock to Buy and established a price target of $37.
The analyst increased estimate based on margin resiliency in the company's Technical Products business and signs of stabilization across the portfolio. While Technical Products came in light of the analyst's estimate on a revenue basis, he has increased confidence that the business has found a bottom at current levels, based on order trends, supporting a healthier outlook in 2010.

Currently, PNR is up $1.25 or 3.84% and trading at $33.81.

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by RTT Staff Writer

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