Xylem's To Grow On High Demand For Water Treatment Services

On Jul 11, 2016, we issued an updated research report on premium diversified machinery company, Xylem Inc. (NYSE:XYL) . The company boasts unique engineering services that are widely used in different wastewater and water applications. Since its inception, Xylem has successfully expanded the scale of its business across international markets like the Asia Pacific, Europe and the U.S. However, the company is currently facing certain headwinds that may partially limit its upside potential.

Growth Prospects

Increasing demand for wastewater and water infrastructure services from the Middle East, the U.S. and certain emerging markets have been resulting in improved business for Xylem’s public utility sector. This, in turn, has been boosting the company’s revenues. The company’s new acquisitions are also expected to support revenue growth and margin expansion in the near term.

Also, Xylem’s increased backlogs, volumes, greater cost discipline and improved operational efficacy should improve its business over time. Based on these positives, Xylem estimates revenues worth $3.7 billion in 2016. The company also expects organic revenue growth of 2–4% year over year. Full-year adjusted earnings guidance now lies in the range of $1.98–$2.08 per share as against the previous estimation of $1.95–$2.05.

Risks

We believe that this Zacks Rank #2 (Buy) stock would continue to witness improvement in its top line and bottom line in the quarters ahead. However, certain issues such as market share loss due to stiff competition and unfavorable currency fluctuation might hamper revenues and margins in the near term.

Other Stocks to Consider

Other well-ranked stocks within the industry include Altra Industrial Motion Corp. (NASDAQ:AIMC) , EnPro Industries, Inc. (NYSE:NPO) and Ingersoll-Rand Plc (NYSE:IR) . All the three companies hold the same Zacks Rank as Xylem.

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