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On Thursday, Raymond (NSE:RYMD) James initiated coverage on Xylem Inc. (NYSE:XYL), a leading global water technology company with a market capitalization of $30.5 billion, with a Market Perform rating. According to InvestingPro data, seven analysts have recently revised their earnings estimates upward for the upcoming period, while Raymond James highlighted a mix of positive and negative factors influencing their rating decision.
The analyst noted the potential for near-term gains in Xylem shares, driven by pricing strategies and recent corporate restructuring. The company has demonstrated solid performance with 8.2% revenue growth in the last twelve months and maintains a strong financial health score according to InvestingPro analysis. The restructuring is seen as beneficial for the company in the long term. Additionally, the demand side of the utility capital expenditure (capex) cycle is expected to support volume growth for the coming years.
However, there are concerns regarding the broader utility capital spending cycle, which could impact Xylem indirectly. The analyst pointed out that water utilities are currently spending at exceptionally high rates, which may not be sustainable. This is evidenced by negative free cash flow margins and high capex to depreciation ratios among publicly traded water utility companies.
The analyst expressed caution over the possibility of a normalization in demand, which could pose risks to the long-term growth rates and consensus estimates that are not currently reflected in Xylem’s valuation. Despite these concerns, the Market Perform rating suggests that Raymond James views Xylem’s stock as likely to perform in line with the overall stock market.
Xylem Inc. is involved in creating innovative solutions to meet the world’s water needs, including water and wastewater treatment, and various technologies related to the transportation and testing of water. This coverage initiation by Raymond James provides investors with a balanced perspective on the company’s stock, considering both internal strategies and external market conditions.
In other recent news, Xylem Inc. reported strong financial performance for the first quarter of 2025, surpassing analyst expectations. The company achieved an earnings per share (EPS) of $1.03, exceeding the forecast of $0.95, and reported revenue of $2.1 billion, which was higher than the anticipated $2.04 billion. This marks a 3% increase in revenue and a 14% rise in EPS compared to the previous year. Additionally, Xylem completed the acquisition of Baycom, which is expected to enhance its technology offerings. The company’s backlog reached $5.1 billion, indicating robust future demand. In a recent move, Xylem’s Board of Directors approved a quarterly dividend of $0.40 per share, reinforcing its commitment to providing returns to shareholders. Furthermore, Xylem maintained its full-year 2025 revenue guidance between $8.7 billion and $8.8 billion, with expectations for organic revenue growth of 3-4%. The company continues to focus on innovation and operational efficiency, as highlighted by its improved EBITDA margin of 20.4%.
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