Mueller Water Products (MWA) has high exposure to US utility capital spending and faces a more challenging setup than the market realizes, RBC Capital Markets said in a Wednesday note.

"Consensus F2027 revenue growth of 4% does not reflect the combined headwinds of fading federal stimulus, hydrant backlog normalization, and ongoing resi softness," the report said.

A separate RBC report forecast a 10% drop in municipal water spending, driven by the expiration of the American Rescue Plan Act at the end of the year.

The note pointed to some 60% to 65% exposure to municipal water, among the highest in its coverage, while its core valve and hydrant business is tied to municipal project activity.

"We see a convergence of headwinds in F2027 that consensus has not yet incorporated," the note said.

RBC downgraded the stock to underperform from sector-perform and cut its price target to $21 from $30.

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