On Sep 26, 2013, we initiated our coverage on
) with an Underperform recommendation. White Plains, N.Y.-based
Xylem engages in the sales and distribution of products like
pumps, valves, heat exchangers, waste systems and membrane
filtration products through direct sales force as well as
independent channel partners.
Xylem has been suffering from declining demand in the European
markets in the past few quarters. In the second quarter of 2013,
the demand deterioration in Europe pulled down the revenues for
transport, treatment and test products. The company sees little
scope for improvement in the demand trend.
The overseas operations of the company expose it to various
risks including foreign currency exchange and geo-political
risks. Foreign currency transactions have not been in Xylem's
favor. In the last reported quarter, the appreciation of the U.S.
dollar and Swedish krona against other currencies pulled down the
revenues and earnings by $14 million and $3 million,
respectively. As the company plans to accelerate its
international operations, the risks associated with it are bound
to hamper earnings.
Additionally, the competitive nature of the industry compels
Xylem to keep investing in research and development to stay
ahead, thereby increasing its costs. Keeping the above factors in
view, Xylem has reduced its revenue expectation for 2013 to
roughly $3.7 billion as against the previous estimate of $3.9
billion. The company also believes that the Industrial and Public
Utility end markets will be down year over year in 2013.
The Zacks Consensus Estimate for 2013 has dropped 21.4% in the
last 60 days to $1.43 per share and for 2014 the estimate
declined 18.8% during the same time frame to $1.69 per share.
Other Stocks to Consider
Other stocks worth a watch in the industry include
The Middleby Corporation
Altra Holdings, Inc.
). While Middleby carries a Zacks Rank #1 (Strong Buy), Altra
Holdings and Dover Corp. carry a Zacks Rank #2 (Buy).
ALTRA HOLDINGS (AIMC): Free Stock Analysis
DOVER CORP (DOV): Free Stock Analysis Report
MIDDLEBY CORP (MIDD): Free Stock Analysis
XYLEM INC (XYL): Free Stock Analysis Report
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