Raymond James Starts Xylem (XYL) at Market Perform

Raymond James analyst Bobby Zolper initiates coverage on Xylem (NYSE: XYL) with a Market Perform rating.

The analyst comments "We resume coverage of Xylem Inc. (XYL) with a Market Perform rating, although we admit our primary concerns relate to the broader utility capital spending cycle as opposed to Xylem-specific issues. On the one hand, we see near-term upside to consensus driven by 80/20-related price increases, view the recent reorganization as highly constructive long term, and the “demand side” of the utility capex cycle prospectively supports volumes through the next few years. On the other hand, water utilities appear to be spending at extremely elevated and potentially unsustainable rates, as evidenced by historically unusual and broadly negative free cash flow margins and capex/depreciation ratios for the publicly traded peer group of water utilities. The potential for demand “normalization” presents risks to guided long-term growth rates and consensus estimates in out-years, which we do not feel is appropriately reflected in current valuation."

For an analyst ratings summary and ratings history on Xylem click here. For more ratings news on Xylem click here.

Shares of Xylem closed at $125.45 yesterday.

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