On Tuesday, UBS initiated coverage on Xylem (NYSE:XYL) stock, listed on the New York Stock Exchange under the ticker NYSE:XYL, with a Buy rating and a price target of $165.00. The firm outlined its positive stance on the water technology company, highlighting its market-leading position and growth prospects.
Xylem, recognized as a top-tier water company, is anticipated to experience a multi-year growth trajectory that surpasses that of its industry peers. UBS projects a compound annual growth rate (CAGR) of approximately 6% through 2028, which is more than double the historical rate of 2.7% that the stock currently reflects.
The company's comprehensive product range, which includes water flow, testing, measurement, treatment, and filtration equipment and services, is poised to capitalize on several long-term trends.
These include the renewal of aging infrastructure in the United States and other developed countries, a push supported by government funding, and the ongoing global urbanization that necessitates further water infrastructure improvements.
Additionally, regulatory measures aimed at enhancing water quality, like those targeting per- and polyfluoroalkyl substances (PFAS) contamination, are expected to play a role in driving demand for Xylem's offerings.
The company's strategic position is further solidified by its recent acquisition of Evoqua, a deal valued at $7.5 billion in 2023, which has left Xylem with a healthy net leverage ratio of 0.7x.
UBS's endorsement reflects confidence in Xylem's ability to outperform within the water sector, backed by a robust margin improvement potential of approximately 100 basis points per year. The investment firm's analysis suggests that the market has yet to fully price in Xylem's growth and margin expansion potential.
"In other recent news, water technology company Xylem reported a strong financial performance in the second quarter of 2024. The company's adjusted earnings per share (EPS) saw an 11% increase, backed by high single-digit organic growth and an expanded adjusted EBITDA margin.
A noteworthy 26% rise in revenue was seen in the Measurement & Control Solutions segment, along with a significant improvement in EBITDA margins.
These positive developments have led Xylem to update its full-year revenue, margin, and EPS guidance upwards, reflecting a positive business trajectory.
The integration of the recently acquired Evoqua is progressing well, with realized cost synergies and effective utilization of combined capabilities by the commercial teams.
In other developments, Xylem announced leadership changes within the Investor Relations department and continues to make strides towards its sustainability commitments. These are among the recent developments in the company's operations."
InvestingPro Insights
As Xylem (NYSE:XYL) garners a favorable outlook from UBS, the company's financial health and market performance offer additional insights. According to InvestingPro data, Xylem boasts a market capitalization of $30.97 billion and has demonstrated a significant revenue growth of 38.64% over the last twelve months as of Q2 2024. This growth is a testament to the company's strong position in the water technology industry and its ability to capitalize on the trends mentioned by UBS.
InvestingPro Tips highlight that Xylem has a track record of raising its dividend for 14 consecutive years, showcasing a commitment to shareholder returns. Furthermore, the company's cash flows can sufficiently cover interest payments, indicating financial stability. Investors should note that while Xylem trades at a high earnings multiple with a P/E ratio of 40.17, it is trading at a low P/E ratio relative to near-term earnings growth, suggesting potential for investment value.
For those seeking more detailed analysis, InvestingPro offers additional tips on Xylem, providing a comprehensive look at the company's financial metrics and future prospects. With the next earnings date approaching on October 29, 2024, interested investors can find further guidance and insights on https://www.investing.com/pro/XYL.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.