Xylem And Evoqua Merger: The Blueprint For Leading Global Smart Water Infrastructure, Predicts Analyst

Stifel analyst Nathan Jones reiterated a Buy rating on the shares of Xylem Inc XYL with a price target of $133.

With the merger of Evoqua Water Technologies Corp, Xylem expects to generate $140 million of cost synergies within three years through savings on duplicative public company costs, procurement, and service footprint, noted the analyst.

Related: Xylem Closes Evoqua Water Buyout, Boosting Position In Water Treatment Solutions

Xylem expects $40 million of exit run rate savings in 2023 and anticipates to more than double the exit rate at the end of 2024. 

Service footprint optimization by rationalizing Xylem dewatering sites and Evoqua service sites is on the radar.

Evoqua bought a lot of pumps, and Xylem believes it can bring more Xylem pumps to Evoqua's outsourced water model as well as drive more Xylem pumping applications at industrial customers' sites.

Xylem doesn't expect to give an explicit revenue synergy dollar target but will update long-term organic growth targets at an investor day in early 2024.

Revenue synergy opportunities are expected from integrating Evoqua's APT segment into Water Infrastructure. Xylem plans to leverage its complementary digital capabilities with Evoqua.

The analyst thinks Xylem's clearly laid-out strategy to build the leading global smart water infrastructure company, while significantly improving the operations of the company over the next several years, provides the potential for solid investment returns over the long run in lower-volatility water markets.

The analyst sees Evoqua as a low risk acquisition and integration with strong opportunity to drive higher growth together than alone coupled with compelling cost synergies opportunities.

The one-year target price of $133 is based on 20x the analyst's 2024E EBITDA.

Also Read: Xylem Raises FY23 Outlook On Solid Q2 Earnings Beat

Price Action: XYL shares are trading higher by 0.42% at $99.93 on the last check Friday.