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Xylem (XYL) Stock Up 29.3% in 3 Months: What's Driving it?

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Xylem Inc.’s (XYL - Free Report) price performance has been impressive in the past three months, which is evident from a 29.3% increase in its share price. Solid product offerings, focus on innovation, large contract wins and rewards to shareholders supported positive market sentiments for the company.

The Rye Brook, NY-based company, with $14.9 billion of market capitalization, belongs to the Zacks Manufacturing - General Industrial industry. The company currently carries a Zacks Rank #3 (Hold).

In the past three months, Xylem has outperformed its industry’s growth of 11.4% and the S&P 500’s increase of 8%.

Factors Favoring the Stock

The company has been benefiting from its diversified business structure, solid product offerings and efforts to boost growth. Also, Xylem stands to benefit from its strong backlog, stemming from large contract wins, apart from its focus on operational execution and cost-saving measures. Notably, for 2020, it anticipates realizing structural cost savings of $70 million, while the same is expected to be $80 million in 2021.

Also, Xylem’s healthy liquidity position adds to its strength. For instance, exiting the second quarter of 2020, it had a liquidity balance of $2.4 billion. This comprised $1.6 billion of available cash and liquidity under credit facilities. A healthy liquidity position allows it to continue with its operations efficiently despite the challenges caused by the coronavirus pandemic.

Moreover, it remains committed in rewarding shareholders handsomely through share buybacks and dividend payments. Notably, in the first half of 2020, Xylem paid out dividends worth $95 million, up 9.2% from the year-ago period. Further, it repurchased common stock worth $60 million, an increase of 53.8% on a year-over-year basis. It is worth mentioning that the quarterly dividend rate was hiked 8% in February 2020.

In addition, analysts have become increasingly bullish about the company over the past couple of months. Its earnings estimates for 2020 and 2021 have been raised 10.8% and 1.1%, respectively, over this time frame.

However, the company’s high-debt profile poses a concern. Notably, its long-term debt was $3,031 million at the end of the second quarter of 2020, reflecting an increase of 49.2% sequentially. Proceeds from debt issuance totaled $987 million in the first half of 2020. Further increase in debt levels can raise the company’s financial obligations.

Key Picks

Some better-ranked companies from the same space are Tennant Company (TNC - Free Report) , Altra Industrial Motion Corp. and Dover Corporation (DOV - Free Report) . While Tennant currently sports a Zacks Rank #1 (Strong Buy), Altra Industrial and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennant delivered a positive earnings surprise of 107.12%, on average, in the trailing four quarters.

Altra Industrial delivered a positive earnings surprise of 31.43%, on average, in the trailing four quarters.  

Dover delivered a positive earnings surprise of 13.71%, on average, in the trailing four quarters.

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