Brean Cuts Estimates On IDEX, Watts Water Technologies And Xylem Over Forex Concerns

Brean Capital reduced estimates for IDEX Corporation IEX, Watts Water Technologies Inc WTS and Xylem Inc XYL Tuesday due to a decline in the Euro versus the Dollar.

Analyst Michael Gaugler noted that all three companies "derive about 35 percent to 40 percent of sales outside the U.S” and that the firm has reduced its revenue forecast assumptions by approximately 3 percent due to the currency headwinds."

Gaugler commented that with “anticipated negative FOREX impacts aside, we continue to recommend accumulation of IDEX Corp and Xylem shares, which we expect to continue to benefit from operational improvements (and thus, higher margins) through our published estimates.”

“With the shares of IDEX Corp and Xylem currently trading at P/E's of 18x and 15x our lowered 2016 estimates, respectively, we continue to see upside from current price levels and recommend accumulation at current levels.”

Gaugler considered “the anticipated currency headwinds as a temporary situation, masking some of the operational efficiencies that have translated into higher earnings to date. Despite our expectations of continuing weak end markets in Europe, we believe U.S. revenue exposure is sufficient to allow earnings to increase YOY in both 2015 and 2016 for all companies if currency headwinds extend throughout the entire year (which is factored into our forecasts).”

Investors may want to take note of any companies having exposure to currencies that are weakening versus the U.S. Dollar. In the above examples, a large percentage of sales were from outside the United States.

IDEX was rated Buy and its target price was cut from $86 to $81. Xylem was rated Buy and its price target was cut from $45 to $40. Both stocks were relatively quiet Tuesday.

Watts Water Technologies was rated Hold with no price target but was surging higher Tuesday and recently traded at $58.95, up 2.18 percent.