Xylem (XYL) Surges 52% in a Year: Will the Momentum Continue?
Shares of Xylem Inc. XYL have rallied 51.7% in a year, outperforming the industry’s 32.6% increase. The upside can be linked to solid underlying demand, price realization and improving supply chains. Shareholder-friendly policies also drove the stock higher.
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What’s Aiding Xylem?
Solid global demand across end markets is supporting Xylem’s top line. The Water Infrastructure segment is benefiting from effective price realization and strength in both utility and industrial end markets. For 2023, the company expects high-single-digit growth in Water Infrastructure.
The Applied Water segment is gaining from commercial and industrial end markets. The company expects mid-single-digit growth in Applied Water. Measurement & Control Solutions is benefiting from a robust utility end market, primarily in the United States, due to strong backlog execution. Also, strong price realization and an improvement in chip supply bode well. The company predicts the segment’s sales to increase in the high-teens for the year.
Amid a strong demand environment, effective price realization and improving supply chains, Xylem’s bullish guidance for 2023 holds promise. The company expects adjusted earnings of $3.15-$3.35 per share. This compares with the year-ago adjusted earnings of $2.85 per share. XYL anticipates total revenues of $5.90-$6.00 billion for 2023, reflecting an increase of 8-9% on an organic basis.
Xylem’s commitment to handsomely reward its shareholders through dividends and share buybacks are encouraging. In 2022, Xylem paid out dividends worth $217 million, up 6.9% year over year. In the first three months of 2023, it paid out dividends worth $60 million, up 9.1% year over year. The company bought back shares worth $52 million in 2022 and $8 million in the first three months of 2023. In February 2023, the company hiked its dividend by 10%.
Will the Uptrend in Shares Continue?
Improving supply chains and strength across end markets are expected to drive Xylem’s performance. While manufacturing activities have contracted lately, some market watchers expected a turnaround in the manufacturing sector in the second half of 2023. This bodes well for all industrial companies, and Xylem is no exception.
The recent acquisition of Evoqua (for approximately $7.5 billion) is expected to bolster Xylem’s top line in 2023. Evoqua’s advanced water and wastewater treatment capabilities and exposure to key industrial markets complement Xylem’s portfolio of solutions across the water cycle. The acquisition boosts XYL’s position in water technologies, solutions and services and strengthens its foothold in lucrative end markets.
Zacks Rank & Other Stocks to Consider
Xylem currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks within the broader Industrial Products sector are as follows:
Ingersoll Rand IR presently sports a Zacks Rank #1 (Strong Buy). The company delivered a trailing four-quarter earnings surprise of 12.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. Shares of the company have jumped 54% in a year.
Graco GGG currently flaunts a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.4% for the current year. Shares of the company have rallied 48.5% in a year.
Flowserve FLS currently carries a Zacks Rank #2. The company pulled off a trailing four-quarter earnings surprise of 2.5%, on average.
Flowserve has an estimated earnings growth rate of 64.5% for the current year. Shares of the company have gained 28.6% in a year.
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