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Xylem (XYL) Exhibits Strong Prospects, Headwinds Persist

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·3 min read
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Xylem Inc. XYL is poised to benefit from its presence in diverse end markets that enables it to neutralize risks associated with a single market with strength across others. In the industrial market, revival in the company’s industrial dewatering business and improvement in industrial activities are likely to drive its performance in the quarters ahead. Healthy projects and infrastructure planning, along with solid demand for its smart water solutions and products related to secondary water supply in China, are likely to be beneficial. For 2021, it expects to generate organic sales growth of 3-4% year over year.

The company’s solid product offerings, focus on innovation, effective operational execution and solid backlog level add to its strength. Exiting the third quarter of 2021, its total backlog was $2,964 million, reflecting an increase of 35.2% on a year-over-year basis. Its focus on cost management, building healthy supply chains and strengthening digital infrastructure are also likely to be advantageous.

Its policy of rewarding shareholders handsomely through dividend payments and share buybacks will work in its favor. In the first nine months of 2021, it paid out dividends worth $152 million and repurchased shares worth $68 million. It also increased the quarterly dividend rate by 8% in February 2021.

However, Xylem has been witnessing adverse impacts of cost inflation. In the third quarter, the company’s cost of sales, and selling, general and administrative expenses increased 4.5% and 2.6%, respectively, on a year-over-year basis. Also, headwinds related to cost inflation (in material, labor, freight and overhead) and a challenging supply-chain environment remain concerns.

Its high debt profile also poses a concern. Exiting third-quarter 2021, its long-term debt balance remained high at $2,455 million. In the quarter, the company’s interest expenses totaled $21 million.

Zacks Investment Research
Zacks Investment Research

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In the past three months, this Zacks Rank #3 (Hold) stock has lost 4.6% against the industry’s growth of 11.1%.

Stocks to Consider

Some better-ranked companies from the same space are discussed below.

Helios Technologies, Inc. HLIO presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 37.54%, on average.

In the past 60 days, Helios’ earnings estimates have increased 7.9% for 2022. Its shares have gained 18.8% in the past three months.

Ingersoll Rand Inc. IR presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 19.78%, on average.

In the past 60 days, Ingersoll Rand’s earnings estimates have increased 11.7% for 2022. Its shares have gained 16.4% in the past three months.

Kadant Inc. KAI presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 19.21%, on average.

Kadant’s earnings estimates have increased 1.2% for 2022 in the past 60 days. Its shares have gained9.1% in the past three months.


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Kadant Inc (KAI) : Free Stock Analysis Report

Xylem Inc. (XYL) : Free Stock Analysis Report

Helios Technologies, Inc (HLIO) : Free Stock Analysis Report

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