XYL - Embedded Expectations Analysis - 2020 07 21
Xylem Inc. (XYL:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 31.0x Uniform P/E. Even at these levels, the market has bearish expectations for the firm, and management may have concerns about slowing demand, margin improvement, and their value propositionSpecifically, management may lack confidence in their ability to maintain their R&D position, prepare for slowing demand, and improve operating revenue and margins, particularly in China. Furthermore, they may have concerns about the impact of industrial customers extending their shutdown, continued declines in Water Infrastructure orders, and greater than expected supply disruptions. Management may also lack confidence in their ability to satisfy customer needs after the pandemic subsides. In addition, they may be concerned about the potential of their structural cost initiatives, and they may be exaggerating their ability to make customers more resilient. They may also lack confidence in their ability to execute their U.S. business continuity plan, and they may be downplaying concerns about Measurement and Control Solutions (M&CS) warranty charges. Finally, they may have concerns about the sustainability of bailouts and the potential of their capex investments
Xylem is water technology company. The company designs, manufactures and services engineered solutions ranging across a variety of applications primarily in the water sector, but also in electric and gas. The company's business segments are: water infrastructure, which serves the water infrastructure sector with pump systems, filtration, ultraviolet and ozone systems and pumping solutions; Applied Water, which serves the usage applications sector with water pressure boosting systems; and Measurement and Control Solutions, which serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and infrastructure technologies.
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