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Xylem's (XYL) Future Prospects Encouraging Amid Macro Risks

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On Jun 6, we issued an updated research report on premium diversified machinery company, Xylem Inc. (XYL - Free Report) .

Over the last one month, this Zacks Rank #3 (Hold) stock yielded a return of 1.92%, outperforming 1.67% growth recorded by the Zacks categorized Machinery-General Industrial industry.

Inside Story

Greater diversification and solidification of product portfolio, non-imitable technology innovation, increased end-market exposure and higher infrastructure spending of the government authorities in emerging countries (like India) are expected to bolster Xylem’s top-line performance in the quarters ahead.

Also, the company tries to elevate its overall operational efficacy to bring down costs and improve productivity. For instance, backed by appropriate cost-cutting measures, the company anticipates to generate savings worth $130 million in 2017 (estimating 10% year-over-year increment). On the other hand, Xylem has combined its analytics trading arm with Sensus and Visenti businesses, in a bid to enhance productivity. Additionally, the company has amalgamated several North American Water Infrastructure and Applied Water sales teams for generating productivity gains.

Furthermore, the company’s diligent business buyouts are anticipated to boost near-term results. For instance, Xylem recently raised its 2020 financial goals (Apr 2017), largely on account of the Sensus and Visenti acquisition benefits.

However, certain headwinds such as unfavorable climatic conditions, supply chain challenges, stiff industry rivalry or adverse foreign currency translation impact might limit Xylem’s commercial growth in the quarters ahead. For instance, the company believes that adverse foreign exchange impact would hurt its 2017 revenues by nearly $20 million.  

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Caterpillar Inc. CAT delivered an average positive earnings surprise of 40.25% for the trailing four quarters and currently boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies, Inc. AIT, which sports a Zacks Rank #1 at present, pulled off an average positive earnings surprise of 9.78% over the last four quarters.

Acco Brands Corporation ACCO currently carries a Zacks Rank #2 and has an average positive earnings surprise of 79.74% for the past four quarters.

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