Will Xylem (XYL) Miss Earnings Estimates in This Quarter?

Xylem Inc. XYL is scheduled to release its second-quarter 2014 results before the opening bell on Jul 29. The company had delivered a positive earnings surprise of 6.25% in the preceding quarter. Let's see how things are shaping up prior to this announcement.

Factors to Consider

Xylem has been experiencing steady growth on the back of contract wins. Recently, the company won quite a few contracts in regions including France, Colombia, U.A.E., Sweden, China, India and Beijing. Xylem aims at further international expansion in order to facilitate a stronger market foothold. However, the company trades in various currencies like the Euro, the Swedish Krona, the British Pound, the Canadian Dollar and the Australian Dollar to name a few. Hence, increased expansion of business in foreign lands will escalate the risks associated with it.

Moreover, with growth in demand for water solutions, the industry is witnessing a rise in the number of service providers. This leads to a heightened competition, causing a loss of market share as well as lesser control over prices.

Earnings Whispers

Our proven model conclusively shows that Xylem is likely to miss earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as we see below.

Zacks ESP: Xylem's Most Accurate estimate stands at 42 cents, while the Zacks Consensus is pegged slightly higher at 44 cents. Hence, the Earnings ESP is -4.55%.

Zacks Rank: Xylem has a Zacks Rank #4 (Sell) which lowers the predictive power of ESP. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the industry that investors may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Flowserve Corp. FLS, Earnings ESP of +1.00% and a Zacks Rank #3 (Hold).

Nordson Corporation NDSN, Earnings ESP of +1.77% and a Zacks Rank #3.

Kennametal Inc. KMT, Earnings ESP of +1.12% and a Zacks Rank #3.