Xylem Stock Exhibits Strong Prospects Despite Persisting Headwinds

Xylem Inc. XYL is benefiting from strong momentum across most of its businesses. Robust demand for advanced metering infrastructure solutions like smart and energy metering and strong backlog execution are aiding the Measurement & Control Solutions segment. Strength in the transport application business, driven by the increased infrastructure projects in the United States, is boosting the Water Infrastructure segment’s performance.

Solid momentum in the treatment applications business, supported by increasing capital projects in emerging markets, also augurs well. The Applied Water segment is gaining from higher demand for commercial building solutions applications, including pumps, valves and dispensing equipment. A strong pipeline of capital projects and services across utility and power end markets is supporting the Water Solutions and Services segment.

Over time, XYL has expanded its market share, product offerings and customer base through acquisitions. Acquisitions contributed $786 million to total revenues in 2024. The company acquired Vacom Systems, a wastewater treatment company specializing in non-fouling, non-scaling evaporator and crystallizer systems, in April 2025. The buyout enhanced Xylem’s capabilities in providing sustainable water solutions. In December 2024, XYL completed the acquisition of a majority stake in Idrica. The inclusion of Idrica’s technology offered growth opportunities for Xylem and enabled it to penetrate new markets and deliver intelligent solutions to its customers.

Xylem’s commitment to rewarding shareholders through dividend payments and share buybacks is encouraging. In the first six months of 2025, the company paid dividends of $196 million, up 12% year over year. It also bought back shares worth $12.9 million in the same period. In February 2025, XYL hiked its dividend by 11%.

Some Negatives

The company has been dealing with the adverse impacts of high costs and expenses. After witnessing a surge of 15.1% year over year in 2024, Xylem’s cost of revenues increased 3% year over year in the first six months of 2025, due to high raw material, labor, freight and overhead costs. In 2024, its selling, general and administrative expenses increased 8.8% year over year, due to additional operational expenditure from the acquisition of Evoqua. Escalating costs pose a threat to the company’s bottom line.

Xylem has considerable exposure to regions outside the United States. Its significant international presence exposes it to political and economic disruptions, all of which can directly affect its profits. Also, the company is exposed to headwinds arising from unfavorable movements in foreign currencies.

XYL is engaged in designing, manufacturing and servicing engineered products and solutions for utility, industrial, residential and commercial buildings globally. The company, which belongs to the Waste Removal Services industry, faces stiff competition from peers like Montrose Environmental Group, Inc. MEG, Zurn Elkay Water Solutions Corporation ZWS and Pentair plc PNR.

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This article originally published on Zacks Investment Research (zacks.com).

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