UPDATE: Stifel Downgrades Xylem to Hold, Reiterates $42 PT on FX Concerns/Valuation

In a report published Monday, Stifel analyst Nathan Jones downgraded the rating on

from Buy to Hold, but reiterated the $42.00 price target. In the report, Stifel noted, “Xylem has considerable exposure to Europe (~25% of revenue), but due to the operating structure of the company (Swiss based), it captures a higher amount of profits in Euro than it does revenue. The result of this is the declining Euro negatively impacts profits more than it does revenue. In essence, the currency translation has an incremental margin of 20%-25% rather than the expected company margin of 13%. We note the incremental on the Euro is in the 50% range, while other currencies translate with ~0% incrementals for a blended margin, under current FX conditions, in the 20%-25% range.” Xylem closed on Friday at $38.08.