On Nov 3, 2016, we issued an updated research report on premium diversified machinery company, Xylem Inc. XYL.
Bullish Factors
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 anticipates reinforcing its financial fundamentals in the upcoming quarters, on the back of increased backlogs, volumes, greater cost discipline and strategic initiatives for operational enhancement. Based on these positives, Xylem has raised its 2016 revenue guidance to $3.8 billion from $3.7 billion, with an estimated year-over-year organic sales growth of 1–1.5%.
Existing Causes of Worry
Greater internationalization has exposed Xylem to several political, environmental, economic and legal headwinds. Moreover, the company’s operating margin is highly sensitive to persistent price fluctuations of major inputs like nickel, copper, aluminum, plastics, seals, bearings, motors and fabricated parts. Also, extensive business rivalry within the industry exposes it to risks of market share loss. Even so, weakness in the energy and mining market has been adversely affecting sales of industrial product producing companies like Xylem.
Zacks Rank and Stocks to Consider
Xylem currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks within the industry that warrant a look include:
ACCO Brands Corporation ACCO currently carries a Zacks Rank #1 and has an average positive earnings surprise of 23.93% over the four trailing quarters.
Applied Industrial Technologies, Inc. AIT currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 4.93% over the last four quarters.
AO Smith Corp. AOS currently carries a Zacks Rank #2 and has an average positive earnings surprise of 5.88% over the trailing four quarters.
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