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Xylem to Drive Water-Industry Innovation on Imagine H2O Deal

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Water technology behemoth Xylem Inc. (XYL - Free Report) recently announced its plan to join forces with Imagine H2O, in order to promote innovation across the global water industry over the long run.

Inside the Headlines

Lately, demand for advanced and innovative data-based water solutions has significantly increased due to rising water challenges across the globe. These solutions help improve water accessibility and protect the environment by boosting energy and water efficiencies. In sync with this, Xylem rolls out state-of-the-art digital water solutions in market.

Imagine H2O assists entrepreneurs in building and scaling solutions which help resolve global water challenges. This non-profit organization has launched a program to support the next-generation water start-up companies. Since 2009, more than 100 start-up companies have been part of this flagship accelerator program, in order to develop their capacity building resources and gain detail insights about the water industry. Notably, more than 270 start-up companies from nearly 40 countries have applied for the 12 available positions in Imagine H2O’s 2019 accelerator program (cohort will be announced in January 2019).

Per the partnership deal, Xylem will become the Sustaining Core Sponsor for Imagine H2O’s annual flagship accelerator program. Per this, the company’s water experts and engineers will provide the required support to the innovative water start-ups companies under Imagine H2O’s accelerator program.

Our Take

Robust utilities, commercial and industrial end-market sales, as well as strength in advanced analytics business-infrastructure platform will likely bolster Xylem’s revenues in the upcoming quarters. Notably, the company currently anticipates organic sales growth of 7-8% in 2018. On the other hand, solid top-line numbers, pricing initiatives and diligent lean-based productivity-enhancement moves will likely drive the near-term bottom-line performance of this Zacks Rank #3 (Hold) company.

Nevertheless, Xylem’s shares have lost 5.8% over the past month compared with the 6.4% decline recorded by the industry it belongs to.

Also, on a Price/Earnings (TTM) basis, the stock looks overvalued compared with its industry for the past month, with the respective tallies of 23.6x and 18.8x.

We even notice that material-price inflation (on account of tariffs) may dampen Xylem’s profitability in the upcoming quarters. A stronger U.S. dollar is predicted to dilute the company’s 2018 earnings by 5 cents per share.

Stocks to Consider

Some better-ranked stocks within the same space are listed below:

DXP Enterprises, Inc. (DXPE - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has pulled off a positive average earnings surprise of 112.62% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luxfer Holdings PLC (LXFR - Free Report) also carries a Zacks Rank of 1. The company has pulled off a positive average earnings surprise of 24.27% in the past four quarters.

Applied Industrial Technologies, Inc. (AIT - Free Report) holds a Zacks Rank #2 (Buy). The company has pulled off a positive average earnings surprise of 11.67% in the past four quarters.

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