Xylem Rises Most Since ITT Spinoff on Profit Forecast

Xylem Inc., the water company whose pumps helped clean tunnels in New York flooded by Hurricane Sandy, surged the most since being spun off from ITT Corp. two years ago after raising annual earnings and sales forecasts.

Xylem jumped 12 percent to $32.53 at the close in New York, the biggest gain and highest price since October 2011, when ITT split under the leadership of Steve Loranger, now Xylem’s interim chief executive officer.

The search for a new CEO is “well under way” after Loranger took over on Sept. 9 when Gretchen McClain left, he said on a call with analysts and investors. Cuts under McClain and a 6 percent rise in orders such as an ozone project in China buoyed results. Cash for share buybacks as well as acquisitions will be available over the next quarter, he said.

“We think the very best acquisition we have in front of us is Xylem stock,” Loranger said on the call. “We have had some operating concerns. We thought it prudent to take a pause on some of the actual acquisitions.”

Sales have picked up, particularly in northern and central Europe, White Plains, New York-based Xylem said in a statement today. Xylem raised its 2013 adjusted earnings per share forecast to $1.60 to $1.65 from $1.40 to $1.50. Analysts projected $1.37 on average.

The outlook, “anticipated restructuring benefits and stabilized, improving end-market conditions should allow for Xylem to finally begin delivering on its spin-out expectations of higher growth as a stand-alone company,” Brean Capital analyst Michael Gaugler wrote in a note to clients today. He raised his rating on the stock to buy from hold.

Xylem’s third-quarter earnings per share of 49 cents, excluding some items, topped the 35-cent estimate.

The stock has risen 34 percent since the spinoff, lagging ITT, which has more than doubled, and a 45 percent gain for Exelis Inc., the defense unit also carved out two years ago. Xylem has advanced 20 percent this year, trailing a 24 percent climb by the Standard & Poor’s 500 Index.