Advanced Drainage Systems (WMS) is poised to continue its outperformance after "strong" fiscal Q1 results, even amid elevated inflation and weak demand, RBC Capital Markets said in a Thursday note.

The quarter's results benefited from $25 million to $30 million of customers' early purchases ahead of price increases, which are expected to normalize in fiscal Q2 and impact revenue and margins negatively, RBC analysts said. However, the company still anticipates normal revenue seasonality, with fiscal H1 representing 55% to 60% of full-year sales, according to the note.

Water management division NDS, which the company acquired in February, delivered $95 million in revenue for the quarter compared with the RBC estimate of $75 million. Advanced Drainage clarified that fiscal Q1 is the division's seasonal peak and reiterated its full-year revenue guidance of $300 million, the note said.

The price/cost dynamic, which was favorable to start the year, is expected to compress in the next two quarters as peak resin costs purchased in April through June are recognized in the financials, though the company stated that these will be offset on a full-year basis, the analysts said.

RBC kept the company's stock rating at outperform and raised the price target to $178 from $170.

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