Shares of water technology company Xylem (NYSE:XYL) declined following a cautious report by short seller Ben Axler’s investment firm Spruce Point Capital Management. The report outlined way shares could fall by as much as 30% to 45% long-term.
In May 2023, Xylem completed an all-stock $7.5 billion acquisition of Evoqua Water Technologies. In the view of Spruce Point, both Xylem and Evoqua were under pressure prior to the transaction, and the combined Company will fail to meet aggressive growth expectations.
“We believe that at least five of its financial goals (accretive M&A, digital growth, emerging markets, margin expansion, and free cash flow conversion) were on track for disappointment prior to the acquisition of Evoqua,” said Spruce Point.
The short seller added, “Based on our analysis, we have identified that Xylem exhibits a consistent pattern of delivering greater restructuring charges and less capital spending than forecasted. We believe such chronic underinvestment and frequent restructuring could reflect Xylem’s inability to get an adequate return on budgeted capital investment and rationalize its complex organization.”
Ben Axler is known for challenging large companies and exposing fraud, although his reports and tactics are oftentimes viewed as controversial.
The cautious report was issued Wednesday morning and caused shares to decline by over 2%.
Xylem has not yet issued a response.