Xylem's (XYL) Growth Prospects Bright Despite Macro Woes
On Aug 16, 2016, we issued an updated research report on premium diversified machinery company – Xylem Inc. XYL. The company's unique engineering services 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
Xylem’s public utility sector’s business has been gaining strength over time. This improvement is largely attributable to the rise in demand for its wastewater and water infrastructure services, especially in the U.S. Moreover, the latest acquisitions made by the company are expected to boost revenues and earnings in the near term. Xylem also expects to reinforce its financial fundamentals in the upcoming quarters on the back of increased backlogs, volumes, greater cost discipline and strategic initiatives to enhance operations. Based on these positives, Xylem anticipates to generate total revenue of $3.7 billion in full-year 2016, with an estimated year-over-year organic sales growth of 2–3%.
Existing Issues
Greater internationalization has exposed Xylem to several political, environmental, economic and legal headwinds. Moreover, the company’s operating margin is highly sensitive to continuous price fluctuations of major inputs like nickel, copper, aluminum, plastics, seals, bearings, motors and fabricated parts. Also, extensive business rivalry exposes the company to risks of market share loss. In addition, weakness in the energy and mining market has been adversely affecting sales of industrial product producing companies like Xylem.
Stocks to Consider
Xylem currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include DXP Enterprises, Inc. DXPE, Gorman-Rupp Co. GRC and Tennant Company TNC. All the three companies sport a Zacks Rank #1 (Strong Buy).
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DXP ENTERPRISES (DXPE): Free Stock Analysis Report
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XYLEM INC (XYL): Free Stock Analysis Report
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