Xylem Inc. (XYL): what the price requires

At today's price, Xylem Inc. (XYL) is priced for today's economics sustained for ~5.5 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/XYL

Headline

FieldValue
TickerXYL
CompanyXylem Inc.
Current price$120.89/sh
CompositionWater Infrastructure - Transport 18% / Water Infrastructure - Treatment 12% / Applied Water - Building Solutions 12% / Applied Water - Industrial Water 9% / Measurement and Control Solutions - Smart Metering and Other 20% / Measurement and Control Solutions - Analytics 4% / Water Solutions and Services - Capital and Other 13% / Water Solutions and Services - Services 12%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed4.5%
Operating margin today12.7%
Margin compression implied-8.2pp
Must persist for5.5y
Multiple paid28x operating income

The operating-margin requirement is derived from the framework's value band at year 8, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.3% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.8 years.

How unusual the bet is: elevated

ReferenceValue
vs own history+0.58σ
cohort percentile (of 225 peers)64
sustained it ~5.5 years at this level28%
implied end-window share0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset2.82x5expensive
Earnings3.40x5expensive
Relative2.10x5expensive
Growth1.30x3expensive

Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.5%); the inversion above states its own rate.

Per-Model Detail (n=18)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$85.511.41xyesFCF base $1.0B, growth 6% (input: historical growth), terminal g 4.0%, WACC 8.5%, 5yr projection
DCF Exit MultipleGrowth$112.551.07xyesExit EV/EBITDA: 22.0x / 24.0x / 26.0x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$84.021.44xyesP/E 21.6x (blended: static sector reference 18x + trailing (TTM) 30x), scenarios: 18.2x / 21.6x / 25.0x (bear / base = reference held flat / bull), EV/EBITDA 15.6x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$43.582.77xyesBV/sh $45.09, ROE (TTM) 8.9%, ke 9.3%
Two-Stage Excess ReturnAsset$42.852.82xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$92.741.30xyesRev $9.1B, growth 6% (input: historical growth; tapered), Terminal P/S: 2.7x / 3.2x / 3.8x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$48.242.51xyesEPS $4.02, growth 10% (input: historical EPS growth), PEG=3.14 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$25.924.66xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.90B × (1−23%) / WACC 8.5% → EPV (no growth)
Residual IncomeAsset$42.732.83xyesBV $45.09 + 5yr PV of (ROE (TTM) 8.9% − Kₑ 9.3%) × BV; BV grows 5.8%/yr
Graham NumberAsset$63.861.89xyes√(22.5 × EPS $4.02 × BVPS $45.09) — Graham's conservative floor
EV/EBITDA RelativeRelative$56.772.13xyesEBITDA $1.30B × sector EV/EBITDA 12.0x
FCF YieldEarnings$35.533.40xyesFCF $966.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$33.133.65xyesSBC-adj FCF $0.91B (FCF $0.97B − SBC $0.05B) capitalized at Kₑ
Ben Graham FormulaEarnings$93.061.30xyesEPS $4.02 × (8.5 + 2×9.6%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$7.8415.42xyesBV $45.09 × (ROIC 1.5% / WACC 8.5%)
P/Sales SectorRelative$93.391.29xyesRevenue $9.09B × sector P/S 2.5x
PEG Fair ValueRelative$57.652.10xyesEPS $4.02 × (PEG 1.5 × growth 9.6% (input: historical EPS growth)) → PE 14.3x
Earnings YieldEarnings$43.462.78xyesEPS $4.02 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$1.8b
Net debt / NOPAT (after-tax)2.09x
Net debt / operating income (pre-tax)1.62x
Interest coverage41.3x
Share count CAGR (dilution)7.7%
Burning cashno

Bullet Takeaways

Bull Case

Water is the rare industrial end market where demand is not really cyclical in the way bridges or factories are; it is structural. People need clean water and functioning wastewater systems in every economy, and the infrastructure that delivers it is aging in the developed world and being built out in the emerging one. Xylem sits across that whole chain, and the 10-K describes a portfolio spanning "filtration and separation, disinfection, and wastewater solutions, for municipal and industrial applications," reaching infrastructure customers indirectly through channel partners. That breadth, transport, treatment, applied water, smart metering, and services, is the sector lens that matters: Xylem is less a single-product manufacturer than a diversified bet on the water cycle, which smooths the demand and gives it many places to grow.

The execution has been turning the secular story into financial results. Full-year 2025 revenue reached a record $9.0 billion, up 6% reported and 5% organically, and the company guided 2026 toward $9.1 to $9.2 billion with adjusted EBITDA margins expanding 70 to 110 basis points. The margin expansion is the part the bull case leans on, because it comes from productivity and price realization rather than just volume. The 10-K points to building solutions growing on "strong price realization and higher demand in the U.S." even as some emerging markets softened, which is the signature of pricing power: the company can lift price into a mixed demand environment and still grow.

The portfolio is also getting sharper. Xylem has been integrating its treatment acquisition and pruning the edges, including selling the Evoqua Magneto business out of Water Infrastructure for $61 million, which signals a willingness to keep the portfolio focused on the highest-return water assets rather than holding everything it bought. Recurring services and smart-metering analytics add a layer of stickier, software-adjacent revenue on top of the equipment, and the balance sheet is strong enough to keep funding the growth, with interest coverage near 49 times. Analysts have leaned positive on the margin trajectory and on data-center-related water demand, with price targets clustering well above the current price.

Bear Case

The most honest bear argument here is what the valuation methods are saying, and they are not subtle: not one family of method reaches today's price. The asset-based lens lands at well under half the price, the earnings-power methods at roughly a third of it, the peer-multiple lens below it, and even the forward-growth method does not get there. When every approach says the price is rich, the conservative reads are usually the more honest ones, because they are anchored on what the business has actually earned rather than on what it might. The price is a bet beyond what any standard frame supports, and the burden of proof sits entirely on the growth continuing.

The inversion quantifies that burden. At about 26 times operating income, the price embeds roughly 24.9% annual operating-profit growth sustained for five years. That near-term rate is within what Xylem has recently delivered, so the stretch is not the pace but its persistence: only about 30% of comparable fast-growers have sustained this level even five years, and the company sits in the upper half of its peer multiple range while doing it. If the growth fades toward the 2% to 4% organic rate the company itself guides for 2026, the multiple has a long way to compress, because a low-single-digit grower does not warrant a high-twenties multiple of operating income.

The demand is also not as immune as the secular story suggests, which is where the model disagreement gets its teeth. The 10-K names the dependencies plainly: results turn on the "availability of commercial financing for our customers and end-users" and the "availability of funding for our public se"ctor customers, the municipalities whose budgets fund water projects. Regulatory uncertainty, it warns, "could materially and adversely affect our business." Municipal capital spending can stall when budgets tighten or rates stay high, and a meaningful chunk of Xylem's revenue ultimately depends on public-sector willingness and ability to spend. The static methods price that risk; the share price assumes it away. That gap is the bear case.

Valuation

At the current price the market pays about 26 times company-wide operating income, which inverts to roughly 24.9% annual operating-profit growth held for five years. That near-term rate is within Xylem's recent record, so the demanding assumption is duration rather than rate, and the historical caveat is sharp: only about 30% of comparable fast-growers sustained this pace even five years, and Xylem already trades in the upper half of its peer multiple range. The label the read carries is elevated, above what the fundamentals comfortably support.

The valuation families are unusually unanimous, and that unanimity is the signal. The price sits at roughly 2.6 times where the asset-based methods land, about 3.1 times the earnings-power methods, near twice the peer-multiple lens, and above the forward-growth method as well. No family reaches the price. For a high-quality compounder that is not necessarily a verdict that the business is bad; it is a verdict that the price already credits years of continued execution. The reconciliation between the static lenses and the forward one is simply that the market is paying for the growth and the margin expansion to keep arriving, which the methods that anchor on trailing results cannot frame.

Solvency is the comfortable part of the picture. Net debt of about $1.8 billion is under twice trailing operating income, and interest coverage near 49 times means the balance sheet is not a source of risk; it is an asset that funds the bolt-on acquisitions and the buildout. The share count has risen, partly reflecting acquisition-funded shares, which dilutes per-share growth slightly and is worth tracking against the EBITDA gains. The downside here is not financial distress; it is multiple compression if the growth normalizes toward the low-single-digit organic rate the company guides for 2026.

Catalysts

The fourth-quarter and full-year 2025 results, reported in February 2026, set a record. Full-year revenue reached $9.0 billion, up 6% reported and 5% organically, with fourth-quarter revenue of $2.4 billion and adjusted earnings up on productivity and price realization. The quality of the result was in the margin, which the company has been lifting through optimization rather than relying on volume alone, and the book-to-bill running above one earlier in the year pointed to a healthy backlog feeding forward demand.

The forward catalyst is the 2026 guidance and whether the margin expansion lands. Management initiated full-year 2026 revenue guidance of $9.1 to $9.2 billion, organic growth of 2% to 4%, and an adjusted EBITDA margin of roughly 22.9% to 23.3%, up 70 to 110 basis points from 2025. The organic growth rate is the number that matters most for the thesis, because the price embeds far more than that, so any acceleration or deceleration against the 2% to 4% range will move the valuation debate directly.

Sentiment is constructive but stretched. The stock carries a consensus buy rating, with a median price target around $157 and recent moves higher into a roughly $160 to $173 range citing margin progress and data-center-related water demand, though some firms have reset targets lower. The events most likely to move the thesis are the quarterly organic-growth prints against guidance, the cadence of margin expansion, and any shift in municipal and industrial capital-spending appetite.

Peer Cohorts (Per Segment, With Filing Citations)

Water Infrastructure (reported)

Applied Water (reported)

Measurement and Control Solutions (reported)

Water Solutions and Services (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Xylem Q4 2025 results, February 2026 · Xylem FY2025 10-K · analyst notes via Benzinga and MarketBeat, 2026 · Xylem 2026 guidance · analyst notes via Benzinga, MarketBeat, and Tikr, 2026

View the full interactive XYL report on boothcheck