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Washington, District of Columbia-based Xylem Inc. (XYL) engages in the designing, manufacturing, and servicing of engineered products and solutions. Valued at a market cap of almost $29.8 billion, the company is a leader in developing innovative water solutions through smart technology and operates in over 150 countries.
Shares of this water technology provider have underperformed the broader market over the past 52 weeks. XYL has gained 21.1% over this time frame, while the broader S&P 500 Index ($SPX) has rallied 30.6%. Moreover, shares of XYL are up 7.1%, compared to SPX’s 23.6% return on a YTD basis.
Narrowing the focus, XYL’s underperformance becomes more evident when compared to the Industrial Select Sector SPDR Fund’s (XLI) 31.5% gain over the past 52 weeks and 21.9% return on a YTD basis.
On Oct. 31, shares of XYL declined 6.5% following its Q3 earnings release as the company’s revenue of $2.1 billion missed the consensus estimates of $2.2 billion. Softness in Europe and emerging markets led to a 4% annual decline in its Applied Water segment revenues. Moreover, project timing pushouts in the Measurement & Control Solutions (MCS) and Water Solutions & Services (WSS) segments further impacted its performance. However, its adjusted EPS of $1.11 per share met the consensus estimates primarily due to a 140-bps expansion in its EBITDA margin, demonstrating XYL’s strong operational discipline.
For the current fiscal year, ending in December, analysts expect XYL’s EPS to grow 11.9% year over year to $4.23. The company’s earnings surprise history is promising. It met or surpassed the consensus estimates in each of the last four quarters.
Among the 18 analysts covering the stock, the consensus rating is a “Moderate Buy,” which is based on 10 “Strong Buy,” one “Moderate Buy,” and seven "Hold” ratings.
The configuration is less bullish than three months ago, with 11 analysts suggesting a “Strong Buy.”
However, on Nov. 1, Barclays maintained an “Outperform” rating on XYL but lowered the price target to $154, which indicates a 25.7% upside from the current levels.
The mean price target of $151.60 represents a nearly 23.8% upside from XYL’s current price levels. The Street-high price target of $172 suggests an upside potential of 40.4%.
