Xylem (XYL) Q4 Earnings: What's In Store For The Stock?

Xylem Inc. XYL is scheduled to report its fourth-quarter and full-year 2016 results before the opening bell on Feb 2, 2017.

Xylem’s stock is currently underperforming the Zacks categorized Machinery-General Industrial industry. Over the last three months, shares of this Zacks Rank #4 (Sell) stock recorded a return of 4.90% – weaker than 17.55% return provided by the Machinery-General Industrial industry.

However, this Zacks Rank #4 stock has witnessed a positive average earnings surprise of 1.74% for the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

Factors to Influence

Certain industry specific headwinds might hurt Xylem’s top- and bottom-line results in the quarter under review.

For instance, dismal pricing conditions in the energy market are currently hurting Xylem’s dewatering business. Choppy oil prices might further hurt the sales of oil companies and, hence, significantly lower the extent of Greenfield investments made within the sector. This would ultimately reduce the investments made by oil companies and hence weigh over the near-term sales generated by producers of heavy equipment, machinery parts and steel products like Xylem.

Also, Xylem’s operating margin is highly sensitive to continuous price fluctuations of major inputs like nickel, copper, aluminum, plastics, seals, bearings, motors and fabricated parts.

Each business segment of Xylem faces stiff competition. Extensive business rivalry increases the bargaining power of customers and thus, exposes the company to risks of market share loss. In order to retain competitive power, Xylem is forced to make heavy innovation and turnkey project investments, which add to its near-term aggregate debt level. Even so, the appreciating U.S. dollar is enhancing the competitive power of smaller companies operating in low-cost nations, thereby increasing revenue and margin loss risks for Xylem.

Xylem’s business is also largely dependent on third-party suppliers as well as commodity and contract manufacturing market conditions. The company accrues different types of components, raw materials and input parts from these entities. Xylem is likely to face severe supply chain challenges and would fail in providing accurate services to customers, if the third-party suppliers are unable to provide the required materials on time. Notably, adverse climatic conditions such as heavy floods and droughts might give rise to severe operational challenges to the company.

Based on the existing conditions, the company anticipates generating revenue worth $3.8 billion for full-year 2016. While expects to report earnings within the range of $2.02–$2.04 per share for the whole-year.

Over the last 60 days, the Zacks Consensus Estimate for the stock has been revised downward for both 2016 and 2017.

Earnings Whispers

Our proven model does not conclusively show that Xylem is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as we will see below.

Zacks ESP: Xylem currently has an Earnings ESP of -3.08%. This is because the stocks’ Most Accurate Estimate of 63 cents comes below the Zacks Consensus of 65 cents.

Xylem Inc. Price and EPS Surprise


Xylem Inc. Price and EPS Surprise | Xylem Inc. Quote

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Xylem’s Zacks Rank #4 and a negative earnings ESP make surprise prediction inconclusive.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks within the industry that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Cintas Corporation CTAS, with an Earnings ESP of +0.94%, and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fairmount Santrol Holdings Inc. FMSA, with an Earnings ESP of +11.11%, and a Zacks Rank #2.

Greif, Inc. GEF, with an Earnings ESP of +8.00%, and a Zacks Rank #2.

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Greif Bros. Corporation (GEF): Free Stock Analysis Report
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Xylem Inc. (XYL): Free Stock Analysis Report
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