Why Xylem Shares Surged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of water industry equipment specialist Xylem soared 13% today after its quarterly results and outlook topped Wall Street expectations.

So what: The stock plummeted three months ago on management's downbeat guidance, but today's actual Q3 results -- adjusted EPS of $0.49 on revenue of $965 million versus the consensus of $0.35 and $918.7 million -- suggest that demand isn't nearly as soft as Xylem had expected. In fact, adjusted operating margin increased 50 basis points to 15.5%, giving analysts plenty of good vibes over the company's competitive position going forward.

Now what: Management now sees full-year EPS of $1.60-$1.65 on projected revenue of roughly $3.8 billion, nicely ahead of Wall Street's view at $1.43 and $3.73 billion. "Our third quarter performance and ongoing cash generation are strong signs that we are regaining traction," said CEO Steve Loranger. "They give us a solid base from which to execute our strategy and deliver improved operating performance in 2014 and beyond." With the stock surging to a new 52-week high today and trading at a forward P/E of 20, however, much of that forecasted improvement might already be baked into the valuation. 

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The article Why Xylem Shares Surged originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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