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Xylem (XYL) Downgraded to Sell on Headwind Concerns

On Sep 29, 2015, Zacks Investment Research downgraded Xylem Inc.XYL to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #4 have chances of underperforming the broader market over the next three months and might also miss earnings in the upcoming quarter.

Why the Downgrade?

For second-quarter 2015, Xylem's revenues were down roughly 8.5% year over year, while total orders fell 8.2% year over year. We believe the decline in orders and revenues was brought about by the company's poor industrial water applications business in its niche U.S. markets, due to a decrease in dewatering activities, especially in the oil & gas market. Moreover, this is anticipated to weigh on the company's top-line results in the quarters ahead.

Also, despite having its benefits, running operations in several countries exposes Xylem to risks of exchange rate fluctuations. Hence, given the impact of unfavorable exchange rate led by a strong U.S. dollar, Xylem predicts full-year 2015 revenues to be approximately $3.7 billion. This reflects a year-over-year decline of 6-7%.

Investors too remain doubtful about the stock's performance, primarily due to headwind-related risks. Such uncertainties have triggered a downward trend in the Zacks Consensus Estimate for the stock over the last 90 days. The Estimate inched down 1.6% to $1.84 for 2015 and 1.9% to $2.06 for 2016.

However, we believe that going forward, increasing demand for water solutions services, stronger backlogs, greater cost discipline and strategic initiatives aimed at operational enhancement will help Xylem offset the negative impact of headwinds.

Stocks to Consider

Better-ranked stocks in the industry include Graco Inc. GGG , Graham Corporation GHM and Luxfer Holdings PLC ( LXFR . While both Graham Corporation and Luxfer Holdings carry a Zacks Rank #2 (Buy), Graco sports a Zacks Rank #1 (Strong Buy).

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GRACO INC (GGG): Free Stock Analysis Report

XYLEM INC (XYL): Free Stock Analysis Report

GRAHAM CORP (GHM): Free Stock Analysis Report

LUXFER HOLDINGS (LXFR): 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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