$44.00
$89.00
bear $44.00
base $73.00
bull $89.00
margin of safety $47.00
market price* $104.05
Xylem makes and services equipment that moves, treats, measures and tests water: pumps and treatment systems, smart meters and analytics for utilities, and applied water equipment for buildings and industry. It reports in four segments: Water Infrastructure, Applied Water, Measurement and Control Solutions, and Water Solutions and Services. About 58% of 2025 revenue came from the United States, 20% from Western Europe and 14% from emerging markets. No customer exceeded 5% of revenue. How we measured earnings. We start from operating cash flow, remove the swings from receivables, inventories, payables, accrued liabilities and taxes, subtract stock compensation as a real cost, and subtract only the capital spending needed to keep the business running rather than to expand it. On that basis owner earnings per share were about $2.37 to $2.93 from 2018 to 2020-2022 ($2.37 in 2020, $2.61 in 2022), then $3.28 in 2023, $4.05 in 2024 and $4.09 in 2025. The jump reflects the May 2023 purchase of Evoqua, which added earnings and roughly 60 million shares. Because earlier years describe a much smaller business, we measure the level from 2023 to 2025 only; the median is about $4.05 per share. Growth in 2025 was 1.1%. We left two larger cash outflows in 2025 in place rather than adjusting them away: a $146 million build in long-term receivables and $64 million of other asset and liability changes. Our reconciliation of net income, non-cash charges and working capital back to reported operating cash flow ties exactly. About $308 million of 2025 depreciation and amortization is amortization of acquired intangibles, mostly from Evoqua. This is a sunk cost of past deals, so it is not charged against earnings, but it is a wasting asset, so we do not assume the earnings level grows on the back of it. Xylem also recorded goodwill impairments of $148 million in 2019 and $58 million in 2020, which we treat as a risk in the bear case. Base case, about $73 per share. Owner earnings start at the $4.05 level, grow 1% in the first year (at or below the 1.1% just achieved) and 1% a year for ten years, then stay flat. What is credited: modest price realization, which management cites as a driver in 2025, and a backlog of $4,615 million at the end of 2025, of which more than 60% is expected to convert to revenue during 2026. First-half 2026 revenue was $4,461 million against $4,370 million a year earlier (+2.1%) and operating cash flow was $398 million against $338 million, so the level still holds. What is left out: share gains, new products, margin expansion and any benefit from the Idrica acquisition of December 2024, none of which is secured or yet proven in the results. Bear case, about $44 per share. Backlog fell 9% during 2025 (from $5,070 million to $4,615 million), and the company discloses continuing exposure to tariffs, duties and input costs. We assume owner earnings fall about 20% to roughly $3.25 per share, close to the 2023 level, stay there for ten years, and then erode 3% a year as acquired technology and customer relationships age. Leverage is not the issue here: total debt was $1,942 million at the end of 2025, including $500 million of 3.25% notes due 2026, against about $1.0 billion of annual owner earnings. Bull case, about $89 per share. Owner earnings grow 3.5% a year for ten years, then stay flat. That rests on strong price realization continuing and on the backlog being executed on schedule, in line with the roughly 2% revenue growth already delivered in the first half of 2026 plus pricing. It does not assume growth beyond what the business has done. What would make this wrong. If the 9% backlog decline is the start of a longer downturn in utility and industrial spending, owner earnings could fall below the bear level. Conversely, if the 2024-2025 earnings level was itself lifted by one-time gains in working capital that reverse, the base case would be too high. We could not reconcile the 2025 build in long-term receivables to a recurring pattern from the filing alone, and it is the main reason we did not lift the earnings level above $4.05. The margin-of-safety price is near $47 per share, reflecting a stable, but project-exposed and acquisition-heavy, business.