Xylem Acquisition Of Sensus A 'Bold, Strategic Move'
In a “bold strategic move,” Xylem Inc (NYSE: XYL) announced the acquisition of Sensus, a privately held company, for $1.7 billion.
Canaccord Genuity’s John Quealy maintained a Hold rating on Xylem, while raising the price target from $45 to $50.
Acquisition Details
“At first glance we like the fit, as Sensus looks to serve as an R&D ‘springboard’ into broader systems intelligence capabilities, while being immediately accretive to margins and cash flow,” Quealy mentioned.
The analyst pointed out that the acquisition follows a bout of recent activity in the broader metering space, and that the valuation appears compelling, as compared to other water-centric metrology names.
Accretion From The Deal
Quealy expects the acquisition to lead to annualized cost savings of $50 million by 2019, while noting “a much larger synergistic opportunity for revenues.”
The all-cash deal is expected to close in late Q4 and be accretive to Xylem’s F2017 EPS by $0.10-$0.12, with the company intending to boost ROIC with the more than $500 million in non-U.S. cash.
According to the Canaccord Genuity report, “Management forecasts annual growth for Sensus in the ~6-7 percent range, with EBITDA margins expected to expand by ~400bps by 2020.”
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Latest Ratings for XYL
Aug 2016 | Canaccord Genuity | Maintains | Hold | |
Jul 2016 | Barclays | Maintains | Equalweight | |
Apr 2016 | Wedbush | Downgrades | Outperform | Neutral |
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