Xylem Inc.XYLNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $106.72 per share(market-calibrated)

-17.3%

Upside to Fair Value

Current

$128.98

Pure Model

$104.90

Fair Value

$106.72

Bull Case

$123.63

Bear Case

$86.86

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

5.47%

Calibrated Growth

2.73%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $104.90.

What's Driving This Ratingfor XYL

✓

CapEx already efficient

CapEx at 2.96% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 1.85% revenue growth, fading to 2.25% by Year 10. Revenue reaches $12.2B (vs $9.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $87.10/share (14.5x terminal FCF) while exit multiple gives $122.69/share (25.7x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $128.98, the market implies 5.47% perpetual growth — 322bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 70.08% indicates efficient cash generation. FCF reaches $1.9B by Year 10 (15.43% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.16

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.73%

Cost of Debt

Pre-tax Cost of Debt2.55%

Tax Rate19.56%

After-tax Cost of Debt2.05%

Equity Weight (E/V)94.17%

Debt Weight (D/V)5.83%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (94.17% × 9.73%) + (5.83% × 2.05%)

= 9.29%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$9.2B	$10.1B	$10.9B	$11.4B	$12.2B
EBIT	$1.6B	$1.8B	$1.9B	$2.0B	$2.1B
Tax	$314M	$345M	$374M	$391M	$418M
NOPAT	$1.3B	$1.4B	$1.5B	$1.6B	$1.7B
+ Depreciation	$418M	$459M	$498M	$520M	$556M
- Capex	$273M	$299M	$324M	$339M	$363M
- Δ NWC	$16M	$46M	$23M	$24M	$25M
Free Cash Flow	$1.4B	$1.5B	$1.7B	$1.8B	$1.9B
Discount Factor	0.915	0.766	0.641	0.537	0.411
Present Value	$1.3B	$1.2B	$1.1B	$948M	$777M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.9B

Terminal Growth Rate2.25%

WACC9.29%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$27.4B

PV of Terminal Value$11.3B

Exit Multiple Method

Year 10 EBITDA$2.7B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$48.5B

PV of Terminal Value$19.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$10.4B

PV of Terminal Value$11.3B

Enterprise Value$21.7B

(-) Net Debt$463M

Equity Value$21.2B

Shares Outstanding243M

Price per Share$87.10

Exit Multiple Method

PV of Projected FCFs$10.4B

PV of Terminal Value$19.9B

Enterprise Value$30.3B

(-) Net Debt$463M

Equity Value$29.9B

Shares Outstanding243M

Price per Share$122.69

Pure Model Fair Value

$104.90

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.29%	$126.44	$129.52	$133.21	$137.72	$143.34
8.29%	$112.86	$114.92	$117.32	$120.15	$123.55
9.29%	$101.81	$103.25	$104.90	$106.79	$109.00
10.29%	$92.56	$93.60	$94.78	$96.10	$97.62
11.29%	$84.67	$85.44	$86.30	$87.26	$88.34

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$86.86

-32.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.45

Base Case

$104.90

-18.7% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.16

Bull Case

$123.63

-4.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.99

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.85%

Year 3 Revenue Growth5.05%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin17.47%

Tax Rate19.56%

Historical Capex / Rev2.96%

NWC / Revenue9.41%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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