XYL - Embedded Expectations Analysis - 2021 03 31
Xylem Inc. (XYL:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 36.0x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about regional economic recoveries, margin performance, and their ability to secure large deal winsSpecifically, management may lack confidence in their ability to manage restructuring costs, secure more large contract wins, and sustain strong margin performance. Moreover, they may have concerns about the impact of regional economic recovery timelines on their overall business performance, their working capital headwinds due to growth initiatives, and the commercial value of their installed base. Finally, management may lack confidence in their ability to sustain their business momentum coming out of the pandemic, produce attractive sales growth from their differentiated technology, and maintain their receivables and payable performance
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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