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Xylem Acquisition Of Sensus A 'Bold, Strategic Move'

Xylem Acquisition Of Sensus A 'Bold, Strategic Move' - Xylem Inc. NYSE:XYL

In a “bold strategic move,” Xylem Inc XYL 0.71% announced the acquisition of Sensus, a privately held company, for $1.7 billion.

Canaccord Genuity’s John Quealy maintained a Hold rating on Xylem, while raising the price target from $45 to $50.

Acquisition Details

“At first glance we like the fit, as Sensus looks to serve as an R&D ‘springboard’ into broader systems intelligence capabilities, while being immediately accretive to margins and cash flow,” Quealy mentioned.

The analyst pointed out that the acquisition follows a bout of recent activity in the broader metering space, and that the valuation appears compelling, as compared to other water-centric metrology names.

Accretion From The Deal

Quealy expects the acquisition to lead to annualized cost savings of $50 million by 2019, while noting “a much larger synergistic opportunity for revenues.”

The all-cash deal is expected to close in late Q4 and be accretive to Xylem’s F2017 EPS by $0.10-$0.12, with the company intending to boost ROIC with the more than $500 million in non-U.S. cash.

According to the Canaccord Genuity report, “Management forecasts annual growth for Sensus in the ~6-7 percent range, with EBITDA margins expected to expand by ~400bps by 2020.”

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DateFirmActionFromTo
Aug 2016Canaccord GenuityMaintainsHold
Jul 2016BarclaysMaintainsEqualweight
Apr 2016WedbushDowngradesOutperformNeutral

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