Shares of Xylem (NYSE: XYL), the water infrastructure specialist, were falling today after the company beat analyst estimates in its second-quarter earnings report, but it still wasn't enough to live up to the stock's high valuation.
As a result, the stock finished the day down 5.7% on Tuesday.
Image source: Getty Images.
Xylem's results were strong but weren't enough
Revenue in the quarter jumped 26% or 9% organically, reaching $2.17 billion and topping estimates of $2.14 billion. The organic results exclude the impact of its acquisition of Evoqua Water Technologies.
Management pointed to execution and demand that were strong, as were bottom-line results as net margins expanded by 8.9%. Adjusted earnings per share (EPS) increased 11% to $1.09, beating the consensus at $1.05.
CEO Matthew Pine said: "Healthy demand, combined with the team's disciplined operational execution, delivered significant margin expansion in the quarter. Evoqua integration and synergies are also well on track."
What's next for Xylem
The water stock also raised its guidance for the full year, calling for revenue of $8.55 billion, up 16% on a reported basis and 5% to 6% on an organic basis, a slight improvement from its previous forecast. That was slightly below the analyst consensus at $8.56 billion.
It also forecast a margin based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 20.5%, up from 20% previously, and sees adjusted EPS of $4.18 to $4.28, better than its earlier range of $4.10 to $4.25. The new range is slightly ahead of the average analyst estimate of $4.21.
Xylem might have gained on today's news, but the stock was already up roughly 20% year to date and trades at a forward price-to-earnings ratio of more than 30. While the business still looks strong after today's report, the sell-off is understandable given the valuation.
Should you invest $1,000 in Xylem right now?
Before you buy stock in Xylem, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Xylem wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $683,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 29, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
