Shares of Xylem (XYL +0.65%), 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.
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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."
NYSE: XYL
Key Data Points
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.
