UPDATE: Oppenheimer Initiates Coverage on Xylem

In a report published Wednesday, Oppenheimer analyst Jim Giannakouros initiated coverage on

with an Outperform rating, establishing a $44.00 price target. According to the report, XYL is a leader in its served markets with attractive secular growth prospects, margin expansion potential, cash flow improvements and M&A augmenting growth- all positioning it well for share price outperformance. “We believe significant operational upgrades (e.g., lean initiatives, improved sourcing) and a continued heavy-handed approach to restructuring its operations (particularly in Europe) provide plenty of runway for margin expansion,” the report noted. “Additionally, front-end professional engineers specializing in water/wastewater in the US remain busy—a positive leading indicator for related capital build-out. We anticipate increased visibility into improving trends therein would be a catalyst to XYL shares.” Some highlights from the report included: -”XYL manufactures pumps, treatment and testing equipment used to get water to the end user and return it safely to the environment.” -”We believe XYL's margin expansion potential may be underappreciated by investors.” -”We find XYL shares attractive, given order trends are stabilizing/improving in key markets, improving visibility into future large water infrastructure projects, and (near term) EPS upside to consensus on higher margins and (potentially) accelerated share repurchases in '14.” XYL closed Tuesday at $36.44 with shares trading up at 1.45 percent.