Xylem (XYL) Down to Sell on Lingering Macro & Micro Risks
On Jan 12, 2017, Zacks Investment Research downgraded Xylem Inc. XYL to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies with a Zacks Rank #4 are likely to perform weaker than the broader market, over the next few quarters.
Post third-quarter 2016 earnings release, Xylem’s shares recorded a return of 5.02% – underperforming 13.42% return provided by the Zacks categorized Machinery-General Industrial industry.
Why the Downside?
Xylem’s business is currently exposed to several political, environmental, economic and legal headwinds. For instance, the Brexit referendum has raised uncertainty in the company’s UK business. In addition, each business segment of Xylem faces tough competition. Extensive business rivalry increases the bargaining power of customers and thus, exposes the company to risks of market share loss. Moreover, constant appreciation of the U.S. dollar has been enhancing the competitive power of smaller companies operating in low-cost nations. This increases the revenue and margin loss risks for Xylem.
We also note that poor prices of energy resources like oil have been affecting the revenues generated by manufacturing and industrial companies like Xylem. Lower investments made by oil companies have depressed the sales generated by producers of heavy equipment, machinery parts and steel.
Xylem’s operating margin is highly sensitive to persistent price fluctuations of major inputs like nickel, copper, aluminum, plastics, seals, bearings, motors and fabricated parts. The company’s business significantly depends on third-party suppliers as well as commodity and contract manufacturing market conditions. Xylem will likely face major supply chain challenges and might fail to provide accurate services to customers, if these third-party suppliers are unable to provide the required materials on time.
Notably, adverse climatic conditions, such as heavy floods and droughts, might give rise to severe operational challenges for the company.
Stocks to Consider
Some better-ranked stocks from the same space are listed below:
Actuant Corporation ATU has an average earnings surprise of 11.47% for the last four quarters and currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alarm.Com Holdings, Inc. ALRM currently sports a Zacks Rank #1 and has a whopping average earnings surprise of 165.56% for the trailing four quarters.
ABB Ltd. ABB presently boasts a Zacks Rank #1 and has an average earnings surprise of 23.50% for the last four quarters.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ABB Ltd (ABB): Free Stock Analysis Report
Actuant Corporation (ATU): Free Stock Analysis Report
Xylem Inc. (XYL): Free Stock Analysis Report
Alarm.com Holdings, Inc. (ALRM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
