NEW YORK, August 3, 2026, 16:43 EDT — U.S. stock markets have finished the regular session.
- Xylem shares finished at $119.08, rising 1.8%, following a 2.3% fall the previous week.
- A Dow contract valued at about $850 million accounted for 93% of the rise in quarterly orders.
- The midpoint for adjusted EPS guidance increased by 2.7%. The midpoint for revenue declined roughly 0.5%.
Xylem saw nearly all of its second-quarter order increase driven by a single lengthy contract. Shares ended Monday up 1.8% at $119.08.
The significance of that concentration is that bookings do not translate into immediate revenue. Xylem also tightened its sales forecast for the full year.
The roughly $850 million contract accounted for 93% of the stated rise in orders. Excluding this, the article’s calculations estimate order growth at about 2.9%, instead of 42%.
| Second-quarter order snapshot | Reported | Without $850 million contract |
|---|---|---|
| Total orders | $3.086 billion | $2.236 billion |
| Change from previous year | +42.0% | +2.9% |
| Book-to-bill ratio | 1.32 times | 0.96 times |
| Portion of order growth | — | 93.2% |
The calculation in this article is for illustration purposes. The adjusted numbers are not official figures reported by the company.
Dow NYSE:DOW has signed a contract lasting approximately 23 years. Xylem will be responsible for the design, construction, and operation of water systems at Dow’s site in Alberta. Operations for the new system are targeted to start by August 2028.
The schedule provides insight into the backlog. It also indicates that conversion will take place over several years.
Chief Executive Matthew Pine stated, “The demand drivers behind our business continue to strengthen.” The strongest evidence came from the profit figures. Xylem
Adjusted EBITDA margin increased by 150 basis points to 23.3%. Organic revenue climbed 1%, and adjusted EPS was up 16% to $1.46. Gains from productivity, pricing, and mix balanced inflation and a decline in volumes.
| Xylem segment | Organic orders | Organic revenue | Book-to-bill | Adjusted EBITDA margin |
|---|---|---|---|---|
| Water Infrastructure | down 4% | up 3% | 0.98 times | 26.6% |
| Applied Water | up 9% | up 3% | 1.07 times | 21.2% |
| Measurement and Control | up 2% | down 1% | 0.85 times | 21.1% |
| Water Solutions and Services | up 147% | up 1% | 2.25 times | 25.3% |
Water Infrastructure reported the highest margin increase, rising by 480 basis points. In contrast, Measurement and Control saw its margin decrease by 200 basis points, as its book-to-bill ratio stood at 0.85.
Organic orders for Applied Water increased by 9%, supported by wins in data centers. Growth in Water Solutions and Services was largely driven by the Dow order.
| Full-year 2026 outlook | Previous guidance | Updated guidance | Midpoint change |
|---|---|---|---|
| Revenue | $9.2-$9.3 billion | Approximately $9.2 billion | Approximately -0.5% |
| Organic revenue growth | 2%-4% | 2%-3% | -0.5 percentage point |
| Adjusted EBITDA margin | 22.9%-23.3% | 23.1%-23.5% | +20 basis points |
| Adjusted EPS | $5.35-$5.60 | $5.55-$5.70 | +2.7% |
| Free-cash-flow margin | 10.2%-11.0% | 10.2%-11.0% | No change |
The updated forecast is driven by margins. The revenue midpoint declined roughly 0.5%, but the midpoint for adjusted EPS climbed 2.7%. The midpoint for adjusted EBITDA margin improved by 20 basis points.
Capital returns provided a further boost to earnings. Xylem repurchased $1.24 billion of its own shares in the first half. Diluted share count declined by roughly 3% from a year earlier during the quarter.
Share price movements have been mixed. The stock rose 4.0% on the day results were released, then declined 6.4% by Friday. After Monday’s recovery, shares stood 0.6% lower than their July 24 close.
| Water-sector comparison | August 3 close | Daily move | Market value | Trailing P/E |
|---|---|---|---|---|
| Xylem NYSE:XYL | $119.08 | up 1.8% | $28.2 billion | 28.4 times |
| Veralto (NYSE:VLTO) | $94.82 | up 0.6% | $23.3 billion | 23.9 times |
| Pentair NYSE:PNR | $67.07 | up 2.5% | $10.8 billion | 16.9 times |
| Watts Water Technologies NYSE:WTS | $350.52 | up 1.5% | $11.7 billion | 32.1 times |
| Badger Meter (NYSE:BMI) | $136.95 | up 2.0% | $4.0 billion | 32.1 times |
Xylem has a trailing price-to-earnings ratio of 28.4, higher than Veralto and Pentair but lower than Watts and Badger Meter. The company’s shares are valued at 21.2 times the midpoint of Xylem’s adjusted EPS guidance.
Baird’s Michael Halloran increased his price target to $165 from $163, maintaining an Outperform rating. He pointed to “few near-term surprises” and a return to normal conditions. TipRanks
Investors are set to gauge if projections align with the improved margin outlook this week. Third-quarter revenue is expected to be close to $2.3 billion, reflecting 3% growth organically. The company forecasts adjusted EPS in the range of $1.42 to $1.47.
Risks: Executing the Dow project and managing working capital place additional strains. Softer demand from China, inflationary pressures, and reduced volumes may weigh on margin improvements. Existing long-term outsourced projects consumed extra cash in the initial half.
Related articles: Stock Market
Further analysis
Is Xylem able to turn its higher profit forecast into cash flow?
The bulk of cash-flow responsibility now falls on the second half. Revenue is projected at approximately $9.2 billion. The company maintains its free-cash-flow margin goal of 10.2%-11.0%. These targets indicate an expected free cash flow of about $938 million-$1.01 billion for 2026. Xylem generated $219 million in the first half, so the second half must deliver $719 million-$793 million. During H1, $1.243 billion went to share buybacks.
What is the reason management increased EPS guidance, yet lowered its sales forecast?
Xylem posted Q2 adjusted EPS of $1.46, surpassing the $1.34 LSEG consensus. Adjusted EBITDA margin increased by 150 basis points to 23.3%. The company lifted its 2026 adjusted EPS forecast to $5.55-$5.70. Revenue stands near $9.2 billion, with organic growth between 2% and 3%. Diluted shares declined by 3.0%, boosting EPS above the rate of adjusted net income growth.
To what extent was the 42% rise in orders widespread?
The headline overstates the breadth. Organic orders for Water Solutions and Services increased by $850 million, almost equaling the reported company-wide order gain of $912 million. Orders for Applied Water climbed 10.2%. Water Infrastructure and Measurement and Control Solutions saw declines on a reported basis. The backlog totaled $5.315 billion, with around 40% projected to convert in 2026.
Has demand for AI infrastructure already become significant?
The company is experiencing swift growth, though revenue levels remain modest. Management reported that data-centre orders surged by over 300% in Q2. They forecast approximately 200% growth in related 2026 revenue. Despite this, data centres are projected to make up only around 2% of total company sales. While this serves as a catalyst, it has not yet become the primary driver of profits.
Is there still significant upside at the current valuation?
XYL is priced at $119.08, roughly 21.2 times its projected 2026 adjusted EPS midpoint. Analysts on average assign a target price of $153.41, indicating potential gains of about 29%. Price targets vary from $129 up to $183. The consensus rating is Outperform. The broad range of targets highlights substantial differences in views on execution and growth prospects.
What does Xylem need to achieve in the upcoming quarter?
Management forecasts third-quarter organic growth close to 3% and expects reported revenue to be unchanged. Adjusted EBITDA margin is projected between 23.5% and 24.0%, with EPS seen at $1.42-$1.47. The Measurement and Control Solutions segment continues to underperform, as Q2 revenue in that division declined 5.9% and adjusted EBITDA fell 14.4%. Any further delays in metering, slower backlog conversion or sluggish cash generation could weigh on shares.
