Will Q1 Earnings Hold A Surprise For Xylem (XYL) Stock?

Xylem Inc. (NYSE:XYL) is scheduled to report first-quarter 2016 results before the opening bell on May 3, 2016. The company is a leading water solutions provider in the world.

Over the last four quarters, the company has generated a positive average earnings surprise of 2.13%.

Let’s see how things are shaping up prior to this announcement.

Factors to Influence Q1 Results

Increased demand for wastewater and water infrastructure services in the U.S. as well as certain emerging markets is expected to improve the business of Xylem’s public utility sector. This, in turn, is expected boost the company’s revenues in the first quarter.

Also, the company undertakes meaningful business acquisitions to bolster growth. To this end, the company acquired analytics firm – Tideland Signal Corporation – in the first quarter to augment sales in costal and ocean markets. Moreover, the company intends to increase backlogs and achieve greater cost discipline in business to expand margins, going forward.

Based on these above optimistic conditions Xylem, expects to generate higher revenues and margins in first-quarter 2016.

However, poor sales in energy, mining and heavy industrial segments might weigh on the company’s revenues in the first quarter. Also, headwinds such as input price inflation, unfavorable mix and risks associated with exchange rate fluctuations might hurt the company’s top-line and bottom-line results in the first quarter.

Earnings Whispers

Our proven model does not conclusively show that Xylem is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as we will see below.

Zacks ESP: Xylem currently has an Earnings ESP of 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate stand at 34 cents.

Zacks Rank: Xylem holds a Zacks Rank #2. However, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

ACCO Brands Corporation (NYSE:ACCO) with an Earnings ESP of +4.35% and a Zacks Rank #1.

Cimpress N.V. (NASDAQ:CMPR) with an Earnings ESP of +27.78% and a Zacks Rank #1.

Regal Beloit Corp. (NYSE:RBC) with an Earnings ESP of +0.92% and a Zacks Rank #2.

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