Why Xylem Shares Surged

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.

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