Xylem Upgraded to Hold on Innovations & Cost-Saving Plans - Analyst Blog

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On Apr 9, 2015, Zacks Investment Research upgraded Xylem Inc.XYL to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) primarily on the back of its business innovations. Going by the Zacks model, companies holding a Zacks Rank #3 have chances of performing in line with the broader market and are likely to beat earnings in the upcoming quarter.

Why the Upgrade?

Steady economic recovery in the U.S. market is supporting the company's aggregate revenue growth. Moreover, as growing proportion of middle income consumers in emerging economies like China and Brazil call for greater industrialization, it indirectly enhances demand for the company's services.

The company's adjusted earnings in the last reported quarter witnessed a year-over-year improvement of 10.9% driven by an enhanced top line as well as efficient cost-reduction strategies. Further, aided by Lean Six Sigma projects and strategic global outsourcing activities, Xylem has succeeded in lowering its expenses. The company also remains committed to benefiting its shareholders through a worthwhile capital deployment strategy.

This apart, Xylem is making concerted efforts to enhance the quality of its offerings by launching new product and process innovations. Lately, supported by new technologies, the company has strengthened the competency of its Bell & Gossett product category in the market. Under this regime, the company has launched energy efficiency pumps, energy-saving solutions for HVAC, specialized plumbing applications for commercial buildings.

In the last four trailing quarters, Xylem delivered a positive average earnings surprise of 5.15%, without missing the estimates in any season. The positive ESP was attributable to the company's current commercial success. However, in order to beat the broader market in the near future, the company needs to offset the negative impact from macro-headwinds as well as issues related to untimely project deliveries in business.

Stocks to Consider

Some better-ranked stocks in the industry include RBC Bearings Inc. ROLL , Berry Plastics Group, Inc. BERY and Cintas Corporation CTAS . All the three stocks have a Zacks Rank #2 (Buy).

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XYLEM INC (XYL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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