Mizuho Securities analyst Brett Linzey has assigned their neutral stance on XYL stock, giving a Hold rating today.
Geoff Meacham has given his Hold rating due to a combination of factors surrounding Xylem’s current business and market environment. Despite Xylem experiencing a 9% organic growth in the fourth quarter, which exceeded guidance, and a strong performance in Measurement & Control Solutions (M&CS), there are concerns regarding certain segments and external market conditions. For example, the Applied Water segment is showing signs of softness, and there’s a cautious outlook for Xylem’s operations in China due to a backlog that has yet to convert into revenue. Furthermore, while the chip shortage issue has been resolved, and there is a strong backlog in M&CS, the company is facing headwinds as it laps price increases from previous periods.
Brett Linzey’s assessment also weighs in on the financial valuation, citing an ‘expensive Free Cash Flow (FCF) valuation’ as a reason for maintaining a neutral stance. Additionally, the report notes that the adjusted earnings per share (EPS) for the upcoming years have been slightly increased, reflecting the company’s strength in M&CS and stable utility contributions. Nevertheless, the expected ramp down in price realization in 2024 relative to the high levels experienced in 2023 adds to the cautious approach. The new CEO’s focus on value capture, margin expansion, and scaling of the services business is recognized, but it seems that the current valuation already reflects much of the positive news, justifying the Hold rating.
In another report released today, Citi also assigned a Hold rating to the stock with a $126.00 price target.
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Xylem (XYL) Company Description:
Xylem, Inc. engages in the design, manufacture and application of highly engineered technologies for the water industry. It provides water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment. It operates through following business segments: Water Infrastructure, Applied Water and Measurement & Control Solutions. The Water Infrastructure segment focuses on the transportation, treatment and testing of water, offering a range of products including water & wastewater pumps, treatment & testing equipment, and controls & systems. This segment brands include Flygt, Wedeco, Godwin Pumps, WTW, Sanitaire, YSI and Leopold. The Applied Water segment encompasses the uses of water and focuses on the residential, commercial, industrial and agricultural markets. Its products include pumps, valves, heat exchangers, controls and dispensing equipment. The Measurement & Control Solutions segment focuses on developing advanced technology solutions that enable intelligent use and conservation of critical water and energy resources as well as analytical instrumentation used in the testing of water. The company was founded on May 4, 2011 and is headquartered in Rye Brook, NY.
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