Will Q3 Earnings Hold A Surprise For Xylem (XYL) Stock?

Xylem Inc. (NYSE:XYL) is scheduled to report its third-quarter 2016 figures before the market opens on Nov 1, 2016.

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

Existing Scenario

After reporting robust results for the first half of 2016, Xylem believes that consistently rising demand for water infrastructure and wastewater services would improve its revenues and margins in the upcoming quarter. Moreover, the company’s strategic approach toward project execution and lately, new inorganic investments, are anticipated to bear fruit in the to-be-reported quarter. For instance, acquisition of Tideland Signal Corporation in Feb 2016 is expected to supplement Xylems’ sales in the coastal and ocean markets. Furthermore, the company believes that the initiatives undertaken to curb operational costs would help in expanding its margins going ahead.

However, our observations indicate that the company might fail to surprise in third-quarter earnings due to certain headwinds. For instance, lower investments made by energy and mining companies may hurt the demand for industrial services offered by Xylem. Also, further strengthening of U.S. currency might lower foreign revenues and earnings in the upcoming quarterly results.

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 are pegged at 53 cents.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Xylem carries a Zacks Rank #3. However, a 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 that Warrant a Look

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

Casella Waste Systems Inc. (NASDAQ:CWST) , with an Earnings ESP of +60.00% and a Zacks Rank #1.

Ball Corporation (NYSE:BLL) , with an Earnings ESP of +5.44% and a Zacks Rank #2.

Cintas Corporation (NASDAQ:CTAS) , with an Earnings ESP of +0.87% and a Zacks Rank #2.

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