DCF Studio

    XYL · NYQ · Industrials

    Xylem Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 92.16

    Market price

    USD 107.56

    Implied upside

    -14.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 92.16-14.3%
    Exit multiple
    USD 155.43+44.5%
    Market price
    USD 107.56

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 10.6bnUSD 12.5bnUSD 14.8bnUSD 17.4bnUSD 20.5bn+17.8%
    EBITUSD 1.3bnUSD 1.5bnUSD 1.8bnUSD 2.1bnUSD 2.5bn+17.8%
    NOPATUSD 1.1bnUSD 1.2bnUSD 1.5bnUSD 1.7bnUSD 2.0bn+17.8%
    Add depreciation & amortisationUSD 615.4mUSD 725.2mUSD 854.5mUSD 1.0bnUSD 1.2bn+17.8%
    Less capital expenditureUSD -395.5mUSD -466.0mUSD -549.2mUSD -647.1mUSD -762.5m+17.8%
    Less increase in working capitalUSD -184.6mUSD -217.5mUSD -256.3mUSD -302.0mUSD -355.9m+17.8%
    Free cashflow to firmUSD 1.1bnUSD 1.3bnUSD 1.5bnUSD 1.8bnUSD 2.1bn+17.8%
    Discount factor0.95340.86670.78780.71610.6510-
    Present valueUSD 1.0bnUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bn+7.1%
    Present Value Of The ForecastUSD 6.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.000Reported 1.000, pulled toward 1.0 (Blume)
    Cost of equity10.50%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 25.1bn92.4% of capital
    Total debtUSD 2.1bn7.6% of capital, book value as a proxy
    Tax rate18.7%Effective, capped at statutory
    WACC10.01%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 92.16

    74% of EV

    Forecast FCFF, final year
    USD 2.1bn
    Capex at depreciation, working capital in reinvestment
    USD 2.6bn
    Less reinvestment at g/ROIC (25.0% of NOPAT)
    USD -639.5m
    Capitalised
    USD 1.9bn
    ROIC (WACC floor)
    10.0%
    Terminal value, undiscounted
    USD 26.2bn
    Terminal value, discounted
    USD 17.1bn
    Enterprise value
    USD 23.1bn
    Less net debt
    USD 584.0m
    Equity value
    USD 22.5bn

    Exit at 13.5x EBITDA

    Value per shareUSD 155.43

    84% of EV

    Terminal value, undiscounted
    USD 49.9bn
    Terminal value, discounted
    USD 32.5bn
    Enterprise value
    USD 38.5bn
    Less net debt
    USD 584.0m
    Equity value
    USD 37.9bn

    Spread between methods: 51%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.01%117.45117.91118.37118.84119.30
    9.01%102.99103.39103.78104.18104.57
    10.01%91.4791.8192.1692.5092.84
    11.01%82.0982.3982.6982.9883.28
    12.01%74.3174.5774.8375.1075.36

    Outlined: this model. Green text: above today's price of 107.56. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year17.8%22.0%+4.2pp
    EBIT margin12.2%14.6%+2.4pp
    Discount rate10.0%8.7%-1.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.