How the Market Rally and DCF Projections Shape the Outlook for Xylem in 2025

Trying to figure out whether to hold, buy, or pass on Xylem stock? You're not alone. In a market full of twists and turns, Xylem has managed to climb an impressive 25.7% year-to-date, even though the last week saw a minor dip of 1.6%. Over the past five years, those who stuck with the stock have enjoyed more than a 70% total return. That is not just market noise; it points to long-term confidence in Xylem's position and the broader shift toward water technology and sustainability solutions.

It is no secret that water management is gaining significance worldwide, and Xylem continues to appear whenever investors think about companies ready to benefit from those secular trends. The past month's gain of 2.8% shows that optimism has not completely cooled off, and it suggests the market is still weighing how public and private investment in infrastructure could affect the company. However, looking at Xylem’s value score—a direct, numbers-driven measure of how undervalued the stock looks across six different methods—the score sits at a solid 0 out of 6. In other words, most mainstream valuation approaches currently do not see Xylem as undervalued.

Of course, value is rarely that simple, and the headline numbers only tell part of the story. Let us walk through the major valuation methods analysts use to evaluate stocks like Xylem. After that, I will share a perspective that might help you make an even better call for your portfolio.

Xylem scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Xylem Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a widely used method to estimate what a company is really worth, based on how much cash it is expected to generate in the future. It projects Xylem’s future cash flows and then discounts them back to today’s dollars. This provides a sense of the business’s “intrinsic value.”

For Xylem, the current Free Cash Flow is $880.93 million. Analysts estimate that by 2029, this number could climb to $1.74 billion, with annual projections rising each year. While analysts provide reliable cash flow estimates for the next five years, projections after that are extrapolated. Across the decade, these figures suggest a healthy and steady path of growth for Xylem’s business.

Factoring in all these future cash flows, the DCF model values the stock at $137.17 per share. At today’s market price, that works out to a 6.3% premium above the “fair value” estimate. This means Xylem is currently trading a little over what the DCF math supports, but not by a dramatic amount.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Xylem.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Xylem's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Xylem Price vs Earnings

For companies with steady profits, the Price-to-Earnings (PE) ratio is a reliable lens for valuation. It tells us how much investors are willing to pay now for one dollar of the company’s earnings, and works especially well when profits are not erratic from year to year. A higher PE often reflects strong growth expectations and lower perceived risks, while a lower one can flag weaker prospects or higher risk. As every investor knows, the “right” PE is shaped both by what the market expects a company to earn in the future and how predictable or resilient those profits seem.

Xylem currently trades at a PE multiple of 37.83x. For context, that is notably higher than both the average for its industry (24.09x) and the average of its direct peers (31.05x). So, at first glance, Xylem appears more expensive than many competitors.

However, a simple peer or industry comparison does not tell the full story. Simply Wall St’s Fair Ratio method creates a custom benchmark, in this case 27.44x, taking into account not just industry norms but also Xylem’s unique attributes, such as expected earnings growth, margins, scale, and risk profile. This makes it a more thoughtful barometer than any single market average.

Comparing these numbers, Xylem’s current PE of 37.83x stands well above the Fair Ratio of 27.44x. This suggests that, based on today’s fundamentals and outlook, the shares are trading at a level that is likely too expensive versus their fair value.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Xylem Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply the story an investor tells for a company, connecting their beliefs about what drives the business, their assumptions about future revenue, margins and earnings, and ultimately what they think the stock is worth. Narratives link Xylem’s actual business and news to dynamic forecasts, helping you gauge whether today’s price is fair for what you expect in the future.

On Simply Wall St’s Community page, millions of investors can browse, build, and share their Narratives for Xylem. It is an easy and accessible tool; just update the story as new information comes in, and your fair value recalculates in real time. Narratives empower you to compare different perspectives. For Xylem, bullish investors focus on smart metering and recurring service revenue, forecasting a fair value as high as $175 per share. Bearish investors worry about regional risks and margin pressure, and set their fair value as low as $125. Narratives cut through market noise, making it easier for you to see if the current share price fits your beliefs and investment goals.

Do you think there's more to the story for Xylem? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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