12:25 PM EDT, 08/13/2024 (MT Newswires) -- Xylem is likely poised for a multi-decade growth cycle, with the water-management and equipment company propelled by multiple tailwinds, analysts at UBS said Tuesday in a new research note.

UBS began new coverage of Xylem with a buy rating and a $165 price target, describing it as a "pure-play" water company featuring a wide-ranging product suite and bolstered by recent federal legislation mandating nearly $50 billion in new spending for water and sewer infrastructure through the US.

In particular, the UBS analysts expect Xylem to benefit from several secular drivers, including increased government spending in the US and other countries to repair their aging water and sewer systems as well as adding new infrastructure in response to new population growth. New regulations mandating improved water quality should also support a steady rise in sales and margins at Xylem, they said.

But longer-term government spending doesn't always follow initial budget allocations, the UBS analysts caution, with project delays and new priorities possibly weighing on Xylem's compound annual growth rate. Tariffs and other potential restrictions on international trade also may increase the cost of goods sold and reduce margins at the company, they said, while shifts in investor attitudes and sector rotation could depress valuations for utility stocks.

Still, Xylem's forward momentum will likely outpace any possible downside, UBS said, with the analysts writing the "risk of regulatory changes are minimal as improving water quality and infrastructure appears important to both major US political parties."

Price: 129.64, Change: +2.14, Percent Change: +1.68