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XYL – Market expectations are for Uniform ROA to reach new peaks, but management may have concerns about component shortages, margins, and the Esri partnership

June 16, 2021

  • Xylem Inc. (XYL:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 37.2x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about component supply shortages, margin expansion, and their Esri partnership execution.

  • Specifically, management may have concerns about continued component supply shortages and lagging growth in U.S. commercial end markets. In addition, they may lack confidence in their ability to expand margins in H2, execute their strategies for the Esri partnership, and pursue M&A opportunities due to short-term debt maturities. Finally, management may be concerned about the potential of their Network as a Service investments and competitors receiving federal funding