Stockchase Opinions

Wolfgang Klein Xylem Inc. XYL-N STRONG BUY Jun 22, 2018

This water treatment company has had a good correction and now looks like a good buy. This is a quality stock and he has been waiting to buy it – he just wants to understand why there has been a pullback. A quality company and a great long term hold. It is an international play and many silos of business. The 200 month moving average is around $50 and should act as good support.

$66.450

Stock price when the opinion was issued

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PARTIAL BUY
Got ahead of itself. Higher interest rates are a headwind for a richly valued stock. You could start a position here around $85. She likes the water space, a scarce resource, and investors should have a position in it. A pure play, well positioned. Smart metering impacted by chip shortage.
BUY ON WEAKNESS
Water is a scarce commodity. XYL has a great run-up last year when ESG was popular, so the stock price got ahead of fundamentals. Shares have since pulled back, but you can start adding to this now. She's owned this for four years. The chip shortage is hampering demand, though. Demand for water infrastructure and services will endure.
DON'T BUY
It's OK. Problem is still trading at 42x earnings, extremely rich. Price to book is 6.2x, which is very high. Price to sales also high. Payout ratio 48%, not a problem. Long-term dividend growth rate is 7%, the historical norm for public companies. Long-term compound 5-year return is 11%. At risk of PE multiple contraction due to increasing rates. He owns AOS and LNN. Yield is 1%.
BUY ON WEAKNESS

Dominant in water sector. One of the few publicly listed pure plays, so valuation tends to be elevated. Treat, transport, and test water. Clients are utility companies and industrials. Water is a scarce resource. Likes the new acquisition, accretive to earnings in the long run, will expand presence in the space.

BUY
Infrastructure Bill of late 2021 money is only trickling out now

Americans take clean water for granted. Xylem makes water and wastewater pumps and treatment equipment.

BUY ON WEAKNESS

Core holding for her, she trims when it gets pricey. Recent acquisition will broaden client base. Never inexpensive. US infrastructure bill is a tailwind. She buys on pullbacks.

BUY

It beat top and bottom lines last week but shares still sold off. They beat revenues and exceeded organic growth estimates. A great quarter.

HOLD

Owns share in company and will continue to hold. Rising interest rates and supply chain issues are behind the company (rates expected to fall). Would recommend holding. Strong business for long term investor. 

TOP PICK

There will be a water shortage, and he expects a lot of cities city spending on upgrading, maintaining and expanding their water systems. A recent takeover should be accretive,

(Analysts’ price target is $151.31)
TOP PICK

Treats, transports, and tests water (drinking and wastewater). Water is a scarce resource; 70% of the earth is water, but only about 2% is drinkable. Aging infrastructure in developed countries needs to be refurbished. Lots of industries require water. One of the few pure-play, publicly traded water companies, and so it trades at a premium. 

International, with 50% of earnings coming from the US. Going through an operating margin improvement program, to refine focus on customers and products that are most lucrative. Yield is 1.24%.

(Analysts’ price target is $143.50)